Trading Trusts—Oppression Remedies: Report (html)

4. Forms of equitable and statutory relief

Introduction

4.1 This chapter will examine the different forms of equitable and statutory relief available to beneficiaries. The purpose of the chapter is to consider whether existing forms of relief in a situation of oppression enable beneficiaries to extricate their interests from the trust structure.

4.2 As explained in Chapter 3, the remedy that achieves this objective for a company is the buyout order. Another important remedy, which partially achieves this objective, is the winding-up order. The following analysis will consider whether there are equivalent forms of relief in equity and under statute.

4.3 Several participants during consultations suggested that the application of existing equitable doctrine has been settled by the approach adopted in Vigliaroni v CPS Investment Holdings Pty Ltd (Vigliaroni) and Wain v Drapac (Drapac). The implication of this approach is that existing equitable doctrine is ill-suited to provide similar relief to the oppression remedy; the focus of these cases was on the possibility of extending relief under the Corporations Act 2001 (Cth) to trading trusts.

4.4 In the Commission’s view, existing equitable doctrines and statutory remedies do not allow for the type of relief granted in the Vigliaroni and Drapac line of cases. Thus, the Commission considers that the limited nature of existing equitable doctrines and statutory remedies underpins the argument for legislative reform.

4.5 As explained in Chapter 3, under section 233 of the Corporations Act, the broad and flexible nature of the oppression remedy allows for different forms of relief. There are equitable and other remedies that may serve similar purposes. However, this report will not consider the full array of alternative remedies. Buyout and winding-up orders are particularly significant, being the remedies sought in the Vigliaroni and Drapac line of cases. Generally speaking, under trust law the equivalent remedies available in equity are redemption and termination. Although these will be the primary focus of this chapter, the Commission has also considered the equitable doctrines of quasi-partnership and fraud on power.

4.6 The consultation paper outlined equitable remedies that operated in a similar way to some of the remedies available to relieve oppression. The submissions that addressed these issues were of the express opinion that the ordinary remedies available in trust law were insufficient. The overall conclusion is that none of these remedies performs the same function as the oppression remedy under the Corporations Act.

4.7 The most important situations to be considered are where the trading trust is terminated, or units are redeemed pursuant to the terms of the trust deed. The Commission has identified a number of difficulties in relying on the terms of the trust. These will be discussed below.^[1]

4.8 However, a fundamental difficulty is that even where redemption of units or termination of the trust is possible, these remedies do not offer the kind of remedial flexibility achieved through the oppression remedy. In the Commission’s view, this deficiency creates a strong case for reform.

4.9 The consultation paper also considered whether provisions of the Trustee Act 1958 (Vic) and the inherent jurisdiction of the court could be used to provide beneficiaries with relief akin to an order for buyout or winding up. The Commission has taken the view that neither the provisions of the Trustee Act nor the inherent jurisdiction of the court provide beneficiaries with adequate remedies to relieve against oppressive conduct.

4.10 The first section of this chapter explains the conceptual difference between the remedies of termination and winding up. The next sections examine a number of equitable avenues including:

• termination and redemption pursuant to the terms of the trust deed

• estoppel

• vesting of the trust pursuant to the rule in Saunders v Vautier

• quasi-partnership

• fraud on power.

The final sections consider statutory relief under trustee legislation and pursuant to the inherent jurisdiction of the court.

Termination and winding up

4.11 An important distinction, which underpins the analysis that follows, is that the termination of a trust is fundamentally different from that of a company. As explained by Justice Young:

there is a very real distinction between a corporation and a trust, in that with a corporation the property is vested in the corporation itself, but with a trust the property and the prima facie liability for the debts is vested in the trustee.^[2]

4.12 Thus, it is not possible to terminate a trust in the same way that a partnership is dissolved, or a company is wound up pursuant to section 461 of the Corporations Act.^[3] Rather ‘the trust simply comes to an end in certain circumstances and the property is distributed among the beneficiaries.’^[4] In contrast to the court’s power to wind up companies under the Corporations Act, with regards to trusts ‘[t]he court has a duty to uphold and protect trusts, not to destroy them.’^[5]

4.13 An exception to this principle, where the trust is insolvent, is that ‘the creditors may have a corporate trustee wound up under the Corporations Act and a liquidator appointed. That liquidator will, in a practical sense, terminate or “wind up” the trust.’^[6]

4.14 In general terms equity allows a trust to be terminated pursuant to the terms of the trust deed including a power of revocation, and when the beneficiaries are in agreement and ‘have an absolute indefeasible interest in the trust assets, and call for the trustee to pay over the fund’.^[7]

4.15 However, for reasons that will be considered, these mechanisms are not always appropriate in the context of trading trusts. A significant limitation is that most of these mechanisms deal with outright termination of the trust, rather than the redemption by a beneficiary of their interest.

Termination and redemption under the trust deed

General principles

4.16 As outlined in Chapter 2, the trust deed sets out the primary rights and obligations of beneficiaries in a trading trust. The trust deed will usually contain provisions dealing with the termination of the trust. If conditions under the trust deed are met:

the trust will be wound up under the secondary contractual provisions of the trust deed, or the trust property will be held under subsidiary trusts as contained in the deed. The court will give effect to those provisions.^[8]

4.17 The trust deed may contain terms which specify the conditions for the termination of the trust. Where the trading trust is a unit trust, the trust deed will usually specify the mechanism for the redemption of units by the trustee or for purchase by another unitholder.

Termination pursuant to the trust deed

4.18 The general opinion expressed during consultations and submissions was that termination under the terms of the trust deed was unsatisfactory. The Commercial Bar Association of Victoria submitted:

[t]he remedies available and the results of the various cases turn not only on the view taken of the applicable law but also on the differences in the facts and the provisions of the various trust deeds and/or unitholder deeds. For example, in Kizquari, the Court was able to make orders for the restoration of funds to the trust, so that exercise by the unitholder of their rights under the trust deed would lead to their receiving a fair price for their units. However as acknowledged by Young CJ in Eq in the later case of McEwan v Combined Coast Cranes Pty Ltd (2002) 44, ACSR 244, putting in train a pre-emption procedure will only assist the plaintiff where the value of the units is not alleged to have been affected by the activities of the defendant(s). Further, even in cases where there is no misappropriation, exit provisions are generally drafted to give the trustee discretion whether or not to accept a request for redemption or for the other unitholder(s) to have discretion whether or not to purchase the units of a unitholder who wishes to depart. Such provisions will not assist a unitholder who wishes to exit in circumstances where the other unitholders do not wish to cooperate.^[9]

4.19 Cornwall Stodart and Ari Bergman submitted that termination pursuant to the trust deed may be useful in a limited range of circumstances.^[10] However, this will only be the case where:

there is no negative impact on the value of the trust assets that the oppressed minority beneficiary receives as a result of the termination.^[11]

4.20 This submission reflects the fact that there is generally no market for the sale of units in private trading trusts. Moreover, it also reflects the problem identified by the Commercial Bar Association of Victoria discussed above, that the terms of the trust deed will not generally account for the possibility that the trustee could, through conduct, devalue or appropriate trust property, which would consequently affect the value of the beneficiaries’ units.

4.21 As discussed in Chapter 2 at [2.16], the terms of the trust can be supplemented through additional agreements between shareholders and unitholders. However according to Peter Agardy, ‘it is rare to see competently drawn agreements of this kind in place. In many cases there are no such agreements at all.’^[12] Participants during consultations also suggested that similar logic could be applied to the terms of the trust deed.

The Commission’s view

4.22 The Commission agrees that there may be circumstances where there would be no injustice in terminating the trust or redemption of units pursuant to the trust deed. However, as the above submissions reflect, this may not always be the case. Moreover, as shown in Chapter 5, an oppression remedy that allows the court to make orders notwithstanding compliance with the trust deed does not mean that a court will ignore the terms of the trust. On the contrary, the Commission’s recommendations envisage judicial reasoning explicitly being engaged with the terms of the trust instrument. In the Commission’s view the reasoning of Justice Ferguson in Arhanghelschi supports

this approach.

4.23 The case of Gra-Ham Australia Pty Ltd v Perpetual Trustees WA Ltd^[13] is another example of the interaction between general law principles and the terms of the trust deed. In that case, unitholders in a public unit trust applied to redeem their units after the 1987 stock market crash. Pursuant to the terms of the trust deed, the unitholders applied for a valuation from a date seven days prior to the redemption, which was also before the stock market crash. The manager of the unit trust convened a general meeting of all unitholders and amended the trust deed to provide that redemptions were to be valued at the date of redemption.^[14] As Bergman notes, the trust deed in the case provided ‘the majority unitholders with the power to amend the terms of the trust deed and bind all unitholders to the amended terms.’^[15]

4.24 The Western Australian Court of Appeal found against the unitholder on the basis that the manager of the unit trust had acted in accordance with the terms of the trust deed, and had acted bona fide for the benefit of all the unitholders.^[16] Although the unitholder was not a shareholder in the corporate trustee, meaning that the statutory oppression remedies could not apply, Chief Justice Malcolm suggested that the principles of the equitable doctrine of fraud on power articulated by the High Court in Peters’ American Delicacy Co Ltd v Heath^[17] were equally applicable to unit trusts.^[18] Whether the doctrine of fraud on power provides a suitable alternative to the statutory oppression remedy will be considered further below.

4.25 In the Commission’s view, the reasoning in the case demonstrates the importance of considering the terms of the trust deed in determining whether oppression has occurred. The Commission envisages that a similar inquiry would be required under the proposed amendment. It should be noted that under section 232 of the Corporations Act, while the fact that an exercise of a power in good faith is a relevant consideration,^[19] a finding that a decision was made in good faith will not preclude a finding that conduct was oppressive.^[20]

4.26 In the Commission’s view, there are a number of reasons why the provisions of the trust deed leave unitholders in an unsatisfactory position.

4.27 First, the parties may simply not have contemplated the problem that may arise in the event that a unitholder seeks to realise their interest.^[21] In such a case, it is not clear that any remedy, other than the rule in Saunders v Vautier, would be available. Where the trust does contain a termination provision, as submitted by the Commercial Bar Association of Victoria, referred to above at [4.18],^[22] the approach of Justice Young in Kizquari shows that the ordinary principles of trust law, in combination with the terms of the trust deed, may allow for an order equivalent to a buyout. However, this will depend on the specific terms of the trust.

4.28 Secondly, even where these eventualities are contemplated by the trust instrument, the terms of the trust deed will typically provide that an offer to redeem units must be made first to existing unitholders.^[23] This may prevent a unitholder from redeeming their units for full value. A substantial number of participants in consultations and submissions suggested that this would lead (and had led) to manifestly unjust outcomes for beneficiaries.

4.29 There is some authority which suggests that in the context of the distribution of a beneficiary’s interest, in a difficult case a court can assist with valuation by reference to criteria external to the procedure set out in the trust deed.^[24] However, in the Commission’s view, it is not clear that these principles are appropriate in the context of redemption pursuant to the terms of the trust deed.

4.30 As suggested in Chapters 2 and 3, the underlying reason why this situation might be unsatisfactory for individual unitholders is the absence of a ready market for units in private unit trusts. Arguably, this is a fundamental feature of private unit trusts, and it follows that if a unitholder decides to invest in a private unit trust, and the trust deed contains specific provisions regarding redemption and termination, then the unitholders are put on notice that it will be difficult to extricate themselves from the trust. This reasoning appears to have been adopted by Justice Ferguson in Arhanghelschi.^[25]

4.31 During consultations, participants generally rejected this reasoning. A difficulty is that it presupposes that beneficiaries of trading trusts have been adequately advised (or can be advised) of the precise wording and implications of the trust deed. A substantial number of participants at the round table rejected this reasoning, suggesting that the reality was more complex. Peter Agardy submitted that:

In my experience business people usually rely on their lawyers and accountants to recommend appropriate structures for their business. It is often the tax accountants that recommend a trading trust with a corporate trustee, usually a unit trust with discretionary trusts to own the units….

The result is that when there is a dispute between the persons in businesses they are caught in a web of uncertainty. Their rights and obligations are determined by corporations law and trust law. It is rare for the directors of the corporate trustee (who are often also shareholders of the trustee company and beneficiaries of the discretionary trusts that own the units in the unit trust) to fully understand their structures… and that they have left themselves without an obvious remedy when they argue.^[26]

4.32 The Commercial Bar Association of Victoria also implicitly rejected this argument, suggesting that it presupposed that:

participants enter willingly into trading trust structures. The reality is that participants enter into these structures often unknowingly, generally on the fairly high level advice of their accountants that the structure will be tax effective, but without appreciating the consequences of the structure if the business relationship breaks down.^[27]

4.33 In the Commission’s view, these submissions show that the problems besetting minority unitholders will not be resolved by a call for the more careful drafting of trust deeds.

4.34 Some participants, while acknowledging the validity of these arguments, suggested that they raised a further policy question: given that the underlying consideration of trust law is to protect the autonomy of the settlor, then should the law intervene to allow the court to override the express terms of the trust?^[28] This question raises policy considerations that will be examined further in Chapter 5.

Unilateral termination of the trust deed

4.35 It is possible to unilaterally terminate a trust pursuant to a special power of revocation, if this power is included in the trust deed.^[29] However, because of adverse tax consequences these provisions are rarely included in trust deeds.^[30]

Estoppel

4.36 Even where a redemption clause is unambiguous, other equitable doctrines, in particular estoppel, may be relied on by unitholders. Although the requirements are somewhat fluid, estoppel requires that the plaintiff demonstrate that:

(1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant’s property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff’s reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.^[31]

4.37 In Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (Koko Black) the majority unitholder Mr Hills, who was a director in the corporate trustee Koko Black Pty Ltd, attempted to rely on a power under clause 7.2 of the trust deed, which allowed for the compulsory acquisition of units. Justice of Appeal Dodds-Streeton however found that Hills had made a representation:

that investors would be entitled to retain their investment until either successful expansion on a substantial scale was achieved, substantial capital gain secured and the routine reinvestment of all profit was no longer required, or at least, until there had been a reasonable opportunity to achieve these goals. The compulsory redemption of the investors’ interests while the reinvestment policy continued and the business was on the verge of a new phase of significant growth is inconsistent with that meaning, which clearly accords with the understanding to which Messrs Jackson and West deposed.^[32]

4.38 Furthermore, Justice of Appeal Dodds-Streeton found that Hills had

in order to implement his business plans, induced the appellants to invest funds and otherwise to participate in the conduct and management of the business and to forgo any return or benefit from its successful operation and growth. The appellants’ investment of funds and other contributions were induced by, inter alia, Mr Hills’ repeated, although relatively imprecise representations that their investment would be for ‘the long term’, in order to facilitate significant expansion, and, implicitly, consequent capital growth.^[33]

4.39 Moreover, it was clear on the facts that the minority unitholders had acted in reliance on the representations of a long-term venture to their detriment by investing in the business.^[34]

4.40 On the facts, the estoppel claim was made out, which prevented Hills from compulsorily acquiring the units of the minority despite a clear power in the trust deed. However, the requirements for an estoppel claim^[35] suggest that the action will generally only be appropriate in circumstances where the trust structure resembles a partnership or joint venture. The representations arose in Koko Black because the unitholders had negotiated the future course of the business and the terms of the trust deed. Thus, where unitholders seek to merely invest funds without taking part in the management of the business, it is less likely that estoppel will be relevant.

4.41 For these reasons, participants during consultations were generally sceptical about the possibility of estoppel fulfilling the same function as the oppression remedy. Cornwall Stodart and Ari Bergman submitted that:

estoppel based on Koko Black may assist, but the facts that give rise to estoppel do not commonly apply to cases involving oppression of beneficiaries.^[36]

4.42 The Institute of Legal Executives (Victoria) made submissions to similar effect.^[37]

4.43 As shown in Chapter 3, it is not necessary under Australian law to demonstrate a lack of good faith or unconscionability in order to obtain an oppression remedy. If an oppression remedy is available for beneficiaries of a trading trust this would reduce the need to rely upon the doctrine of estoppel.

The rule in Saunders v Vautier^[38]

4.44 Throughout consultations, it became apparent that the rule in Saunders v Vautier does not provide an adequate basis for the termination of trading trusts in order to provide similar relief to the oppression remedy. However, in the Commission’s view, an understanding of the rule is useful from an analytical perspective. There are two reasons for this.

4.45 First, the conceptual basis of the rule further highlights the functional differences outlined in Chapter 2 between trading trusts and other forms of express trusts. Secondly, and allied to the first, the rule in Saunders v Vautier may be useful in explaining the policy rationale of the variation of trusts legislation, which will be discussed later in the chapter.

4.46 According to the authors of the Law of Trusts and Trustees, this rule provides that ‘if the beneficiaries are adults under no disability and entitled between them to the whole beneficial interest they can terminate the trust and divide the trust property between them.’^[39]

4.47 The rule has been rationalised on the basis that:

beneficiaries are the ultimate owners of the trust property, and if competent, should be able to decide what is to be done with it. If there is a sole capacitated beneficiary, and the beneficial interest has vested in him so that either he or his heirs must inevitably be entitled to the property free of the trustee’s control the time has come to dispense with the trustee. To the objection that the settlor apparently intended that the trustee remain in place, it can be replied that if the settlor has made an absolute gift of the beneficial interest in property, the settlor’s primary intention is simply to make the gift. Once vesting has occurred, there is no reason to retain the paraphernalia of the trust.^[40]

4.48 It is important to note that the rule also applies to the beneficiaries of a discretionary trust.^[41]

4.49 The rule therefore applies when the beneficiaries are of full capacity and, as between themselves, are exclusively entitled to have the trust duly administered.^[42] In practice, however, the operation of the rule in Saunders v Vautier is limited by any right of indemnity the trustee may have from the trust property.^[43] In such a case the trustee itself will have an interest in the trust property.^[44] Accordingly, the application of the rule also depends upon the precise terms of the trust deed.^[45]

4.50 As outlined in Chapter 2, the traditional view of an express trust is of a gratuitous transfer of property by the settlor. Moreover, the intention to transfer the trust property is ordinarily manifested in the trust deed.^[46] Thus, the rule in Saunders v Vautier is essentially an exception to the principle that the trust property vests in accordance with the terms of the trust deed.^[47] It follows that ‘the court will act cautiously in ordering any vesting where the issue is in dispute between the beneficiaries.’^[48] The rule from Saunders v Vautier has no application in any case where unanimity of purpose is absent.

4.51 In the Commission’s view, the rule is not practically suited to the function of trading trusts, especially where the beneficiaries have invested at arm’s length. In such a case, it is less likely that the beneficiaries would reach an agreement to terminate the trust. The rule is therefore of no assistance to a minority unitholder who is either being oppressed by the majority, or simply wishes to sell their minority unitholding.

Quasi-partnerships

4.52 It is well established that the beneficiaries of a unit trust are not formally partners.^[49] However, a partnership may be implied if the beneficiaries are granted ‘powers sufficient to enable them as a practical matter to control the trustees’ conduct of the business.’^[50]

4.53 According to Justice Hayton, writing extra-judicially:

It is not exactly clear what degree of involvement in the activities of the trustee-manager will suffice as carrying on a business in common. However it is clear that the fact that, under the rule in Saunders v Vautier, the beneficiaries, if together absolutely entitled and of full capacity, can terminate the trust and require the assets to be transferred to them does not mean that they are participants in the conduct of the business. Until they take advantage of the rule they have no right to give directions or be consulted—unless given such right by the trust instrument.^[51]

It follows that an examination of the trust deed is required in order to determine whether a relationship of partnership exists.

4.54 However, counsel in a line of Australian cases^[52] have sought to rely upon the decision of Ebrahimi v Westbourne Galleries Ltd (Ebrahimi)^[53] to suggest that beneficiaries of a trading trust can stand in a relationship of quasi-partnership. That is, the relationship lacks the formal characteristics of a partnership but still possesses certain fundamental equitable characteristics.^[54]

4.55 Indeed, as Bergman argued:

a quasi-partnership refers to the concept that joint participants in a business venture may have legitimate partnership-type expectations of each other notwithstanding the fact that the vehicle in which the business is conducted is not formally a legal partnership and the purported legitimate expectations may not have been formally contracted.^[55]

4.56 In Ebrahimi, Mr Ebrahimi and Mr Nazar had been formal partners in a carpet business. However, a company was formed with both holding a 50 per cent shareholding, and acting as directors. Later Mr George Nazar, the son of Mr Nazar, entered the business, and was transferred 100 shares from Ebrahimi and Nazar. Nazar and his son used their greater voting power to remove Ebrahimi from the board.

4.57 Lord Wilberforce held that in a small proprietary company, such as this, the members of the company were:

in substance partners, or quasi-partners, and that a winding up order may be ordered if such facts are shown as could justify a dissolution of partnership between them.^[56]

4.58 Furthermore, Lord Wilberforce responded to counsel’s submission that even a small proprietary company was fundamentally different from a partnership by suggesting that both entities are based on equitable considerations.^[57] Lord Wilberforce stated:

a company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.^[58]

4.59 Lord Wilberforce appears to have relied upon equitable considerations, some of which are closely related to fiduciary principles. According to Lord Wilberforce the application of equitable principles will be appropriate when:

(i) an association formed or continued on the basis of a personal relationship, involving mutual confidence – this element will often be found where a pre-existing relationship has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be ‘sleeping members’), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members’ interest in the company – so if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.^[59]

4.60 A difficulty with the reasoning from Ebrahimi concerning this reference, is that even where these elements are established the case may only stand for the proposition that a winding-up order can be made. As discussed in Chapter 3, a winding-up order is an exceptional remedy to alleviate oppression, and is often inappropriate in the context of trading trusts. Where a minority unitholder seeks a buyout, it is not clear that the principles from Ebrahimi are applicable.^[60]

4.61 Participants during consultations stressed that under Australian law, Ebrahimi would be of no avail to a minority unitholder seeking a buyout order. Cornwall Stodart and Ari Bergman submitted that there are:

[s]ome cases in the UK which suggest that it [Ebrahimi] can apply to trading trusts.[However] it is difficult to see how a successful invocation of the quasi-partnership approach can result in any remedy other than termination under the trust deed.^[61]

4.62 The Commission agrees with this submission. In Koko Black, at trial, Justice Hargrave held that the plaintiff could not rely on the reasoning from Ebrahimi in order to obtain an injunction preventing Mr Hills from compulsorily acquiring the units of the minority unitholders.^[62] On appeal, this reasoning was endorsed by Justice of Appeal Dodds-Streeton, suggesting that the reasoning from Ebrahimi is limited to a winding-up order.^[63]

4.63 However, a contrary view has been expressed by Justice Cooke, who said that:

…if it is found that the company falls into this quasi-partnership category, the court is more likely to conclude that it is unfair to fail to give effect to, or bring to an end arrangements which have been made on an informal basis, even though they do not give rise to legal entitlements, or to exclude a participator from the management or conduct of the company’s business, if it was part of the arrangement that he should take part in it. Furthermore, the most commonly sought remedy in unfair prejudice petitions is an order that the petitioner’s shares should be bought out by one or more of the respondents, and the establishment of a quasi partnership is normally a precondition for the court to find that such a buyout should be made without a minority discount.^[64]

4.64 The above passage was recently endorsed in Drapac, although the precise significance of the endorsement is uncertain.^[65]Although Justice Ferguson accepted that the relationship between the parties had broken down, it was not clear that Wain, Murchie and Drapac were in a relationship of quasi-partnership.^[66] Justice Ferguson’s analysis of Ebrahimi was in relation to the equitable principles which underpin sections 232 and 233 of the Corporations Act.

4.65 The reasoning of Justice Ferguson in Drapac has been considered by Cornwall Stodart and Ari Bergman in the following terms:

Ferguson J’s reference to Ebrahami sought to lend weight to the application of oppression remedies to cases of oppression generally (irrespective of structure) so

that a just and equitable result could be achieved for an oppressed party. While

Ferguson J largely followed the thinking of Davies J in Vigliaroni, her Honour supported it by introducing the ‘quasi-partnership’ concept. Ferguson J asserted that the ‘quasi-partnership’ principles could be used as a bridge to support statutory relief under the

CA oppression remedies, especially when applied to a buyout. Koko Black excluded buyouts as a remedy under Ebrahimi.^[67]

4.66 The reasoning of Justice Ferguson can be explained by the historical and conceptual connection between the Ebrahami doctrine and the oppression remedy.^[68] Canadian cases have used the reasoning from Ebrahimi as an explanation for the evolution of an oppression remedy based on the idea of legitimate expectations.^[69] As was shown in Chapter 3, legitimate expectations are also an important aspect of Australian oppression remedy cases.

4.67 In the Commission’s view, it is unlikely that where a quasi-partnership is established, a unitholder may obtain any relief other than termination of the trust. Moreover, the reasoning from Koko Black would suggest that a buyout order is unavailable.^[70] The approach of Justice Ferguson in Drapac is arguably not at odds with this approach.

4.68 However, regardless of which view is adopted, it is important to remember that the reasoning from Ebrahimi is only applicable to those trading trusts that resemble partnerships. For a quasi-partnership to be found, a unitholder would arguably have to both own shares in the corporate trustee, and actively contribute to the management of the enterprise. In the Commission’s view, this is a substantial practical limitation upon the utility of the quasi-partnership doctrine in the context of trading trusts.

Fraud on power

4.69 In the consultation paper, the Commission asked:

Are there circumstances in which the doctrine of fraud on power could provide a useful remedy to minority beneficiaries?^[71]

4.70 The content of the submissions received in response suggest that there is some potential for the doctrine to provide unitholders with equivalent relief to the statutory oppression remedy. Consequently, the following section will expand on the analysis of the doctrine as referred to in the consultation paper.

4.71 The basis of the equitable doctrine of fraud on power is similar to the general concept underpinning shareholder remedies, namely, a restraint upon the principle of majority rule.^[72] The latter idea, in the corporate law context, is often referred to as fraud on the minority.^[73] According to Stefan Lo, the principles underpinning the cases concerning fraud on minority should be understood as particular instances of fraud on power in the context of general meetings and alterations to company constitutions.^[74] Austin and Ramsay explain that:

It appears that the juridical basis of the law of fraud on the minority lies in the doctrine of fraud on a power. This broad doctrine, which was developed in courts of equity, applies to many types of powers. For example, in the law of property it applies to anyone who has power to distribute property among a class of persons. In administrative law it applies to the exercise of administrative discretions.^[75]

4.72 According to Austin and Ramsay there are broadly three types of restraint against majority voting power in corporations. These are:

(1) majority voting for alterations of the constitution or variation of rights of members (see [10.060]);

(2) majority unwilling to direct that proceedings be brought by the company where a wrong has been committed against the company (see [10.130]); and

(3) majority voting in other cases: see [10.140].^[76]

4.73 Austin and Ramsay explain that:

There are procedural differences between categories (1) and (2). In (1) the wrong is done to the minority and they can sue in their own right in personal proceedings for a declaration that the resolution for alteration is invalid and an injunction restraining its implementation. Usually some members of the minority will sue by means of representative proceedings on behalf of themselves and all other members of the minority. A case in category (1) can properly be termed a fraud on the minority. In category (2), however, the wrong is done to the company. It is a fraud on the company and a member of the minority can move only on behalf of the company to bring proceedings by way of derivative action, unless it is an exceptional case where the member has a personal right which has been infringed.’^[77]

4.74 It is clear that category 2 raises questions of a derivative action rather than an oppression remedy. However, even conceptually, it is difficult to apply the logic of a wrong done to a company to trust law. As stated in Chapter 2, a trust has no separate legal personality, and is thus not a separate entity.

The development of the doctrine

4.75 As explained by Stefan Lo, the equitable doctrine of fraud on a power ‘was developed by the courts of equity to restrain actions constituting abuse of power.’^[78] The requisite standard amounting to fraud in equity is lower than the common law, ‘which relates to actual dishonesty.’^[79]

4.76 Since fraud on power could involve an amendment to a trust deed to allow for a compulsory acquisition of a minority unitholding, it has been suggested that the principles from Gambotto v WCP Ltd (Gambotto),^[80] which related to the compulsory acquisition of shares, are relevant. However, the authorities in this respect are uncertain.^[81]

4.77 Whether or not the principles from Gambotto can be applied to unit trusts by analogy, Lo suggested that the equitable principles underpinning the earlier decision of Allen v Gold Reefs ^[82] form the foundation of the doctrine of fraud on power.^[83] In that case, the shareholders amended the company constitution to allow for the grant to any shareholder of a lien securing their debts to the company.^[84] According to the Master of the Rolls, the test for determining the validity of the alteration was whether:

The power, thus conferred on companies to alter the regulations contained in their articles, is limited only by the provisions contained in the statute and the conditions contained in the company’s memorandum of association. Wide, however, as the language of s50 is, the power conferred by it must, like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. These conditions are always implied and are seldom, if ever expressed.^[85]

4.78 On the facts as stated by Lo:

the alteration was made in good faith and for the benefit of the company, as it was clearly in the interests of the company for monies owing to the company to be repaid, even though the alteration of the articles was directed at a single shareholder only, being the only holder of fully paid shares.^[86]

4.79 In Lo’s view, the above reasoning shows that the exercise of powers in good faith is the fundamental basis of the fraud on power doctrine.^[87]

4.80 According to Lo, a further aspect of the equitable doctrine of fraud on power is the restraint on majority shareholders from extinguishing ‘valuable proprietary rights of shareholders or rights conferred on shareholders in the constitution.’^[88]

4.81 There is some disagreement in the literature as to whether the doctrine of fraud on the minority is confined to the two situations stated above, namely, alterations of the constitution and extinguishment of a proprietary interest. McPherson has argued that the doctrine is restricted in this way.^[89] In contrast, Lo has argued that the reasoning of Lord Lindley in Allen v Gold Reefs and other cases suggests that the doctrine is broader.^[90]

Comparison with the statutory oppression remedy

4.82 Lo states: ‘conduct which would amount to fraud on a minority in equity would generally also be conduct that is oppressive or unfairly prejudicial or unfairly discriminatory.’^[91] Moreover, Lo suggests that, based on the view that fraud on the minority is conceptually underpinned by the doctrine of fraud on power, an understanding of the statutory oppression remedy can be informed by equitable principles.^[92] Indeed, a similar approach appears to have been taken by Justice Ferguson in Drapac.

4.83 Given the breadth and flexibility of the oppression remedy, it is not clear whether the equitable doctrine of fraud on power has a separate role to play in Australian corporate law. Lo suggests that it may be appropriate to rely on the doctrine of fraud on power where a buyout has been offered to shareholders at a fair price.^[93] In England there is authority which suggests that a court will not provide additional statutory relief if the previous offer ‘gives all the relief that the applicant could realistically expect to obtain pursuant to the statutory remedy.’^[94] As Lo points out, a difficulty may arise if the shareholder desires a remedy other than a buyout order.^[95]

4.84 It is not clear, however, how relevant this reasoning is to Australia. As shown in

Chapter 3, there are few limitations on the discretion of the court under section 233 of the Corporations Act. There is authority to suggest that if a buyout offer is made at fair value to a shareholder, then a court will not make a winding-up order.^[96] However, in the Commission’s view, this is merely a reflection of the fact that courts will avoid making a winding-up order unless it is warranted in the circumstances.^[97]

4.85 Lo has further argued that it may be advantageous for shareholders to rely on the doctrine of fraud on power, where the alleged oppression relates to an expropriation of a proprietary interest.^[98] Lo stated that in Gambotto, the High Court held that the onus of proof is reversed, and is instead upon the party attempting to ratify the expropriation.^[99]

4.86 In the Commission’s view, there is merit in Lo’s argument that the fraud on power doctrine is the conceptual antecedent to the statutory oppression remedy. However, a significant limitation to the general law doctrine is the lack of certainty regarding the availability of remedies. It is not clear that a court has at its disposal the full array of remedies under section 233 in an action alleging fraud on power. This problem will become more apparent when the doctrine is applied to unit trusts.

The doctrine of fraud on power applied to unit trusts

General principles

4.87 In Cachia v Westpac Financial Services Ltd (Cachia),^[100] Justice Hely stated that:

the equitable doctrine of “fraud on the power” requires that a power, including an amendment power, reserved in a trust must not be exercised for a purpose, or with an intention beyond the scope of or not justified by the instrument creating the power: Vatcher v Paull [1915] AC 372, 378. The same principle applies to the exercise of a statutory power. In each case, the power has to be exercised bona fide, for the purpose for which it is given.^[101]

4.88 The doctrine as stated by Justice Hely has several elements. The first is a matter of interpretation. Thus, a power must not be exercised other than as contemplated by the trust deed. It arguably follows that the trust deed can be drafted in a way allowing for the exercise of a particular power, which would otherwise constitute equitable fraud.^[102] This gives rise to the second element, that the power must be exercised in good faith and for a proper purpose.

4.89 In Cachia, the manager of the Westpac Real Property Growth Trust proposed to make several amendments to the unit trust deed including the clauses relating to redemption. Since the exercise of power constituted a variation of the trust deed, Justice Hely stated:

There are, however, some authorities which suggest that a power to vary a trust deed may be held not to extend to a variation which would alter the substratum of the trust: see, eg, Re Dyer [1935] VR 273; In re Ball’s Settlement Trusts, Ball v Ball [1968] 1 WLR 899; Re Blocksidge [1997] 1 Qd R 234; Kearns v Hill (1990) 21 NSWLR 107; Locke v Westpac Banking Corporation (1991) 25 NSWLR 593 at p 602. This may be no more than an application of the equitable doctrine of fraud on the power, referred to in 74 of these reasons [emphasis added].^[103]

4.90 In Cachia Justice Hely held that the doctrine was not made out in circumstances where the trustee had amended, at a special meeting, the redemption clause of the trust deed so that units could be compulsorily redeemed through the issue of units in a new trust.^[104] Although this meant that unitholders were unable to redeem their units for market value, this did not constitute a lack of good faith, since the ‘provisions introduced by the amendments were not directed against only some of the unitholders. They affected all unitholders equally, and in the same way.’^[105]

4.91 In terms of whether the power had been validly exercised, there were two important aspects of the reasoning. First, the trust deed did not preclude the type of amendment on the facts.^[106] Secondly, a reorganisation of the trust did not necessarily entail an alteration of the substratum of the trust.^[107]

4.92 The passage at [4.89] could be interpreted as suggesting that the requirements of the doctrine will be satisfied if the variation does not alter the substratum of the trust. Matthew Conaglen however submitted that:

It seems to me that this underplays the potential application of the doctrine of fraud on a power. Its application will depend on the specific power which is at issue in a given case, as there is a fraud on that power where that power is used for a purpose for which that power was not given. In the context of a power to change the constitution of a unit trust (or any other trust) one can readily understand the argument that a trustee would not act in fraud of that power unless it was used in a way that undermined the substratum of the trust. But that is not necessarily the case in respect of all powers which a trustee might use in a potentially oppressive manner… However, this point does not undermine the argument that there will be cases, functionally, where oppression may need to be remedied and where the fraud on a power doctrine will not avail.^[108]

4.93 The Commission agrees with this submission. The statement of principle from Cachia at [4.89], should be read as suggesting that a power to vary the trust deed will usually not constitute a fraud on power unless it alters the substratum of the trust.

Remedies

4.94 A problem, however, with the application of the fraud on power doctrine is the limited range of remedial options. Although the conduct that potentially falls within the doctrine is expansive, this is not clearly mirrored by equivalent powers available to a court in response to oppression under section 233 of the Corporations Act.^[109] In Cachia, the unitholders sought equitable compensation.^[110] As was discussed in Chapter 3, this will not often be a satisfactory remedy in cases of oppression.

4.95 In Koko Black, the unitholders sought an injunction preventing Mr Hill from compulsorily acquiring their units.^[111] However, it is not clear whether an injunction enforcing a buyout order, beyond the terms of the trust deed is an available remedy in response to fraud on power. It has been suggested that the court does not have such a power.^[112] Matthew Conaglen submitted that:

[a]s to the remedy for fraud on a power, this depends on whether the power is legal or equitable. In Australia, there is also case law which (based on a misunderstanding of English authority) suggests that the exercise of power is merely voidable, as opposed to void (which is the predominant view in England). Either way, however, neither approach would provide the court with an obvious basis for making a buyout order.^[113]

4.96 Participants at the roundtable were generally sceptical regarding application of the fraud on power doctrine. Most participants suggested that the doctrine was not as flexible as the oppression remedy, in either the corporate law or trusts context.

4.97 Cornwall Stodart and Ari Bergman submitted that:

Fraud on the power is a breach of trust for which aggrieved unitholders/beneficiaries are able to seek remedies that commonly include declarations, injunctions, rescission or restitution. Within the context of oppressive conduct in trusts, such remedies are, therefore, of potential value in assisting oppressed unitholders/beneficiaries. However, the traditional doctrine of fraud on the power (in a Unit Trust context) will generally only provide relief to a unitholder against the trustee rather than against fellow unitholders.

Most claims of oppression relate to circumstances where the alleged infringer has acted in accordance with the terms of the empowering document but in a manner that is oppressive to the aggrieved party. In such circumstances, the doctrine is generally inapplicable.^[114]

4.98 As noted in Matthew Conaglen’s submission,^[115] there are two practical limitations on the application of the fraud on power doctrine.

4.99 First, an invocation of the doctrine relates to the alleged abuse of power by trustees.^[116] This may be the case where the unitholder takes no part in management and there is a separation in responsibilities between unitholders and the controllers of the corporate trustee. However, as shown in Chapter 3, many unit trusts adopt a different structure where unitholders are actively involved in the business. In such cases, the oppressive conduct will be alleged against other unitholders rather than the corporate trustee.

4.100 It has been suggested that, in the context of corporate law, it may be possible to allege an action of fraud on power against a fellow shareholder. Lo stated:

It is important at this point to distinguish between two different aspects of fraud which could occur in situations giving rise to an argument for the ‘fraud on the company’ exception. The first aspect of fraud arises when it is the directors who have engaged in improper actions in breach of their fiduciary duties to the company. This is the fraudulent conduct of the directors which constitutes the original wrong done to the company, and in relation to which the company could sue. The second aspect of fraud arises when the majority shareholders refuse to take action against the wrongdoers. By preventing the company from seeking a remedy and allowing the company to suffer loss, the shareholders commit a further wrong to the company, thereby perpetuating another fraud on the company. It may well be that the shareholders who control the general meeting are the same persons as the directors who committed the original wrongs, however when a minority shareholder seeks to bring a derivative action, the shareholder is complaining about both the original wrong done to the company plus the additional wrong which the company suffers when the appropriate organs of the company fail to prosecute the wrong.^[117]

4.101 In the Commission’s view, both of these aspects are inappropriate to the context of trading trusts. Both aspects presuppose the separate legal personality of the company, and the consequent legal duties owed to it by directors, and arguably shareholders in certain limited circumstances.^[118] An analogy with trading trusts, however, is difficult to sustain. Indeed, a beneficiary does not ordinarily owe equitable or fiduciary obligations to other beneficiaries.^[119] Thus, the Commission agrees with Bergman’s statement:

the traditional doctrine of fraud on the power in a trust context will generally only provide relief to a unitholder against the trustee rather than against fellow unitholders.^[120]

4.102 Secondly, the application of the fraud on power doctrine may be limited by the terms of the trust deed. Where the trust deed indemnifies a trustee to the extent that a certain power has been exercised in a certain way, then in order to establish fraud on power, a unitholder may have to show that the ‘trustee’s actions have eroded the ‘substratum’ of the UT [unit trust].’^[121] An exclusion clause could be inserted into the trust deed, providing the trustee with an unfettered discretion,^[122] so long as the substratum remained unaltered. It is not clear whether the substratum refers to the fundamental purpose of the trust,^[123] or to the ‘irreducible core’ of trusteeship.^[124] The former appears to be the preferred approach in Cachia.^[125]

4.103 According to Bergman, both the ‘substratum’ and ‘irreducible core’ tests provide limited protection to unitholders where the trust deed contains an exclusion clause indemnifying the trustee for conduct that would otherwise constitute fraud on power.^[126] This would suggest that the fraud on power doctrine is of limited use to unitholders where the trust deed contains a wide exclusion clause.

4.104 The Commission agrees that there is some potential for the development of the doctrine of fraud on power in this area. Equitable considerations underpinning the doctrine will continue to inform the operation of the statutory oppression remedy under the Corporations Act and by extension, the amendment proposed by this reference.^[127]

4.105 However, the Commission considers that the remedial flexibility offered under the Corporations Act is greater than under general law. The Commission also considers that there are two further practical difficulties in relying on the fraud on power doctrine. First, the potential breadth of exclusion clauses contained in the trust deed; and secondly, the inability to bring an action against a unitholder.

The Trustee Act 1958 (Vic)

Administration of trusts under the Trustee Act

4.106 The Trustee Act 1958 (Vic) by Part IV—entitled ‘Powers of the Court’—confers a suite of powers upon ‘the Court’ to administer trusts. By section 3(1) of the Act ‘Court’ is defined to mean the Supreme Court, and the County Court ‘in relation to property or an estate or interest in property the value of which property does not exceed the jurisdictional limit of the County Court.’ The County Court’s monetary jurisdictional limit was repealed by section 3(1) of the Courts Legislation (Jurisdiction) Act 2006 (Vic) and thus it now formally has the same jurisdiction as the Supreme Court under Part IV.

4.107 A court has a wide array of powers including power to appoint new trustees and subsequently vest the trust property.^[128] A court also has the ability to hear an application by a trustee for advice on the management or administration of the trust in relation to proposed dealings.^[129] Moreover, section 63 allows the court to authorise a trustee, upon application, to exercise powers in the administration and management of the trust beyond the terms of the trust deed.

4.108 However, as outlined in Chapter 1, the application of oppression remedies and an examination of equivalent equitable relief suggest a more limited inquiry. If the trust deed provides that a unitholder has a certain number of units, then a variation by the court may arguably confer power on the trustee to redeem those units, other than pursuant to the terms of the trust deed if that be ‘expedient’. As will be shown below, there is some authority to suggest that a court has an incidental power to alter the beneficial interests of the beneficiaries, even where this is contrary to some of the beneficiaries’ wishes, or to the terms of the trust deed.^[130]

4.109 However, when considering the issues that arise throughout this section, two matters must be borne in mind. First, termination of the trust is conceptually different from altering beneficial interests. It will be recalled that the concept of winding up is foreign to the law of trusts. Indeed, Justice Barrett speaking of the statutory powers of winding up under the Corporations Act^[131] said:

I mention them only to emphasise that, in the absence of applicable statutory powers, it is no business of the Court to act so as to put an end to a trust’.^[132]

4.110 As explained by Dal Pont, Chalmers and Maxton, this has led to powers being conferred upon the court to vary the terms of trusts ‘but [in] continuation of the administration of the trust[s].’^[133] This appears to be based on a perceived limitation of the criterion of expediency within section 63, namely, that:

the jurisdiction is exercisable only where expedient in the interests of the beneficiaries as a whole and is limited by its terms to questions of ‘management or administration’ of the trust. For this reason, it does not confer jurisdiction on the court to alter the substratum of the trust.^[134]

4.111 The second issue is that even if such a power is conferred under the Trustee Act, it

would be limited in a key respect. Indeed, according to Cornwall Stodart and

Ari Bergman:

The Trustee Act 1958 (Vic) only governs the conduct of trustees and not the conduct of a majority of beneficiaries or the conduct of those who control the (corporate) trustee.^[135]

4.112 In the Commission’s view, this suggests a substantial limitation on the reliance of the current provisions of the Trustee Act, to provide equivalent relief to an oppression remedy. As shown in Chapter 3, many instances of oppression in trading trusts relate to conduct by other unitholders. This issue was explicitly raised during consultations and is explored further below.

Variation pursuant to section 63A of the Trustee Act

4.113 Section 63A gives the court the power to consent to the variation of beneficial interests under a trust in certain circumstances.

4.114 However, it is clear that section 63A does not empower a court to vary the beneficial interests of unitholders or to order remedies against oppression as under the Corporations Act.

4.115 Indeed, according to the editors of Ford and Lee: The Law of Trusts:

[a] principal object [of the legislation] is to enable the court to approve an arrangement for the variation of a trust on behalf of persons unable to give approval themselves, that is beneficiaries who cannot vary or terminate the trust under the rule in Saunders v Vautier.^[136]

4.116 This is clearly reflected by the four categories of beneficiaries specified under section 63A.^[137] It does not follow, however, that the consent of all the beneficiaries is required in order for the court to exercise its power under section 63A.^[138]

4.117 This illustrates an obvious difficulty for unitholders since, as discussed above, it is difficult to envisage a situation where unitholders would be able to avail themselves of the rule in Saunders v Vautier generally.

Section 63

4.118 Section 63 of the Trustee Act 1958 (Vic) provides a different power from that provided by section 63A. Section 63 provides that:

(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.

(2) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order.

(3) An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.

4.119 Most Australian jurisdictions contain provisions akin to section 63.^[139] The powers conferred under the sections, however, are not identical. The Commission does not propose to consider the applicability of relief against oppression in every Australian jurisdiction.

4.120 Regarding the operation of section 63, Cornwall Stodart and Ari Bergman submitted that:

The Trustee Act 1958 (Vic) only governs the conduct of the trustees and not the conduct of a majority beneficiary or the conduct of those who control the (corporate) trustee.^[140]

4.121 Rather than governing the conduct of trustees, the section allows the court to grant a power to a trustee if certain conditions are met. The Commission agrees that the section does not directly govern the conduct of shareholders and directors of the corporate trustee, since this would create jurisdictional issues. Moreover, although section 63 grants a beneficiary standing,^[141] it clearly cannot be used to compel a particular course of conduct by a beneficiary in a trading trust.

4.122 In the Commission’s view, section 63 is fundamentally limited in two key respects.

4.123 First, the cases that consider section 63, and the statutory equivalents in other jurisdictions, suggest that a court will not use section 63 to fashion relief for beneficiaries akin to oppression remedies, including orders akin to a buyout or winding up. Orders of this kind would be equivalent to the court taking over the management of the trust. Rather, the cases suggest that the provisions are designed to confer administrative powers, not otherwise available, on the trustees.^[142]

4.124 Second and linked to the first, the only way powers under section 63 will be effective is if the trustee is willing to exercise them.

4.125 The reasoning in the case of Re Estate of Barns^[143] suggests that section 63 should not be interpreted as providing the court with the ability to mandate that a trustee exercise its powers in a particular way. In that case, Justice Robson held that the grant of power pursuant to section 63 must be for the management or administration of the trust.^[144] Moreover, an alteration of the beneficial interests contained in the trust deed was permissible only:

to the extent that they might incidentally be affected by the exercise of the powers which the section does in terms confer.^[145]

4.126 In the Commission’s view, the approach adopted by Justice Robson in Re Estate of Barns demonstrates that section 63 is designed to facilitate the administration and management of trusts by trustees. Although the court has the ability to confer powers on trustees beyond the terms of the trust deed, this presupposes the willingness of trustees to administer the trust. Conduct which gives rise to oppression is fundamentally different since it presupposes that the trustee or beneficiaries are at odds with each other.

4.127 The Commission therefore considers that section 63 cannot practically be used to fashion relief akin to an oppression remedy.

Variation of trusts in other jurisdictions

Variation pursuant to section 59C of the Trustee Act 1936 (SA)

4.128 Some of the statutory equivalents of section 63A and section 63 in other Australian jurisdictions are of broader application. Section 59C of the Trustee Act 1936 (SA) provides:

(1) The Supreme Court may, on the application of a trustee, or of any person who has a vested, future, or contingent interest in property held on trust—

(a) vary or revoke all or any of the trusts; or

(b) where trusts are revoked—

(i) distribute the trust property in such manner as the Court considers just; or

(ii) resettle the trust property upon such trusts as the Court thinks fit; or

(c) enlarge or otherwise vary the powers of the trustees to manage or administer the trust property.

(2) In any proceedings under this section the interests of all actual and potential beneficiaries of the trust must be represented, and the Court may appoint counsel to represent the interests of any class of beneficiaries who are at the date of the proceedings unborn or unascertained.

(3) Before the Court exercises its powers under this section, the Court must be satisfied—

(a) that the application to the court is not substantially motivated by a desire to avoid, or reduce the incidence of tax; and

(b) that the proposed exercise of powers would be in the interests of beneficiaries of the trust and would not result in one class of beneficiaries being unfairly advantaged to the prejudice of some other class;

and

(c) that the proposed exercise of powers would not disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the powers;

(d) that the proposed exercise of powers accords as far as reasonably practicable with the spirit of the trust.

(4) An order made by the Supreme Court in the exercise of powers conferred by this section is binding upon all present and future trustees and beneficiaries of the trust.

(5) This section does not apply to—

(a) a trust affecting property settled by an Act; or

(b) a charitable trust.

(6) This section does not derogate from any other power of the Supreme Court to vary or revoke a trust, or to enlarge or otherwise vary the powers of trustees.

4.129 On its face, section 59C(1)(a)(i) of the Trustee Act 1936 (SA) enables a trustee or a beneficiary to approach the court for a variation of the trust deed. The editors of Ford and Lee: The Law of Trusts have suggested that underpinning section 59C is the requirement that:

the exercise of the powers given should be in the interests of beneficiaries of the trust and should not result in one class of beneficiaries being unfairly advantaged to the prejudice of some other class.^[146]

4.130 Significantly, the wording of this section bears a resemblance to the drafting of the oppression remedy under section 232 of the Corporations Act. However, a key difference is that the section only allows for the distribution of trust assets, once a trust has been revoked. Thus, section 59C cannot be used to obtain relief equivalent to a buyout unless a winding-up order is also sought.

4.131 However, in Benzija v Adriatic Fisheries Pty Ltd, the court refused to wind up a trust under section 59C on the basis that, on the facts, the court did not have the power to do so.^[147]

4.132 Interpreting the section, Justice Bollen said:

It is difficult to know when to use it. There are no positive criteria stating the possible circumstances in which orders may be made. There are stated circumstances in which the Court should not exercise powers given by the section. One is that the exercise of the powers must not ‘disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the power.’ Yet there is no hint in the section of what reasons Parliament might think adequate for the exercise of the jurisdiction.^[148]

4.133 On the facts, however, Justice Bollen said:

I think that an exercise of the powers given by the section would not be in the interests of all the beneficiaries. I think it in the interests of all that the vessel should, under direction of the trustees, continue operating. I think that the continuation of it is likely to produce good profits to all concerned. Moreover, I think that a revocation and distribution of the property, would as Mr. Lunn suggests, unduly advantage the Benzijas to the detriment of the Cubelics.^[149]

4.134 Justice Bollen said it was clear that section 59C enabled a court, in the exercise of its discretion, to revoke a trust.^[150] However, the power of the court did not extend ‘merely to help a disgruntled minority holder.’^[151] Nor should the discretion be invoked when one party had made an offer to buyout the interest of the other at fair value.^[152]

Variation pursuant to section 81 of the Trustee Act 1925 (NSW)

4.135 Section 81 of the Trustee Act 1925 (NSW) is also of wider operation than section 63 of the Victorian Act. Section 81(1)(a) provides that the court’s power extends to making an order:

(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court:

(a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and

(b) may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

4.136 Like the South Australian legislation, section 81 does not limit beneficiaries to a particular type or class. Importantly, the section expressly includes the power to adjust the respective rights of beneficiaries.

4.137 According to Justice Rein:

s 81 cannot be used to subvert the beneficial disposition in the trust instrument, but if an order is made in the management or administration of trust property, it is permissible under s 81 to accommodate the beneficial interest to the new situation created by the new order’.^[153]

4.138 In the Commission’s view, despite the reliance in the Victorian authorities on cases dealing with section 81, the New South Wales Trustee Act section appears to have broader operation than section 63. Even so, as stated above, the section does not enable a court to mandate that the trustee exercise its powers in a particular way, or to vary the beneficial entitlement.^[154]

Variation of trusts under the inherent jurisdiction of the court

4.139 Cornwall Stodart and Ari Bergman submitted that:

there are authorities to suggest that there is no inherent jurisdiction in the court to provide an alternative remedy for minority beneficiaries. Hence the scope for minority beneficiaries to receive an alternative remedy is, at best, uncertain under the current law.^[155]

4.140 In Chapman v Chapman the House of Lords held that the inherent jurisdiction of the court did not extend to the alteration of beneficial interests.^[156]

4.141 Moreover, Justice Austin in Arakella v Paton stated that:

The Court’s power under s 81 cannot be used to subvert the beneficial disposition in the trust instrument, but if an order is made in the management or administration of trust property, it is permissible under the section to accommodate the beneficial interests to the new situation created by the order. In my opinion that position is indistinguishable from the approach taken by Myers AJ in the Ku-ring-gai Council case. It is unnecessary to debate whether it is different from the position under the UK provision, as explained by the English Court of Appeal in the Chapman case.^[157]

4.142 According to the editors of Ford and Lee: The Law of Trusts, it is implicit in this reasoning that the New South Wales Supreme Court has no inherent power to alter the beneficial interests of trusts.^[158] The Commission considers that the reasoning from Arakella and Chapman is equally applicable to Victoria.

4.143 Thus, the argument that the inherent jurisdiction of the court does not extend to the alteration of beneficial interests is highly persuasive, and by parity of reasoning, does not extend to the grant of relief akin to an oppression remedy.

Conclusion

4.144 This chapter has considered three potential alternatives to the oppression remedy: existing equitable doctrine, variation pursuant to the Trustee Act and the inherent jurisdiction of the court.

4.145 The Commission has considered termination and redemption pursuant to the terms of the trust deed, estoppel, vesting of the trust pursuant to the rule in Saunders v Vautier, quasi-partnership and fraud on power. The general conclusion of the Commission is that while there is potential for equitable doctrines to fulfil some of the goals of the oppression remedy, each doctrine is limited in key respects.

4.146 The Commission agrees that there are a limited number of circumstances where the relief afforded by the trust deed itself will be appropriate for beneficiaries or unitholders. However, in the Commission’s view, reliance on variable terms of the trust deed is no real substitute for reform.

4.147 The Commission agrees with submissions that there is some potential for the doctrine of fraud on power to assist unitholders subject to oppressive conduct. The narrow range of remedies and structures which are appropriate for the application of the doctrine, however, illustrates its inherent limitations.

4.148 Although section 63 of the Trustee Act 1958 (Vic) allows the court to confer powers on trustees beyond the terms of the trust, it does not allow a court to mandate a trustee to act in a particular way. Thus, the purpose of the section is fundamentally different to the oppression remedy contained in the Corporations Act.

4.149 Lastly, it is unlikely that the Supreme Court of Victoria has an inherent jurisdiction to alter beneficial interests, and thus by extension, the power to provide relief akin to oppression remedy such as a buyout order.

1. From paragraphs [4.22] following.

   ↑

2. Horwath Corporation Pty Ltd v Huie (1999) NSWSC 583 (19 March 1999) [14].

   ↑

3. P Young, C Croft and M Smith, On Equity (Lawbook Co, 2009) 502. Also see the conclusions from CAMAC, ‘Managed Investment Schemes’ (Report, July 2012) 57, cited in Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 59.

   ↑

4. CAMAC, ‘Managed Investment Schemes’ (Report, July 2012) 57, cited in Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 85.

   ↑

5. P Young, C Croft and M Smith, On Equity (Lawbook Co, 2009) 502, citing Re Gaydon [2001] NSWSC 473 (8 June 2001) [29].

   ↑

6. P Young, C Croft and M Smith, On Equity (Lawbook Co, 2009) 502.

   ↑

7. Ibid 501.

   ↑

8. P Young, C Croft and M Smith, On Equity (Lawbook Co, 2009) 503, citing Re Gaydon [2001] NSWSC 473 (8 June 2001) [29].

   ↑

9. Submission 5 (Commercial Bar Association of Victoria) 4.

   ↑

10. Submission 6 (Cornwall Stodart and Ari Bergman) 6.

    ↑

11. Ibid 6.

    ↑

12. Submission 2 (Peter Agardy, Victorian Bar) 2.

    ↑

13. (1989) 1 WAR 65.

    ↑

14. This summary of the facts reflects Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 38.

    ↑

15. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 38.

    ↑

16. Gra-Ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65, 81.

    ↑

17. (1939) 61 CLR 457.

    ↑

18. Gra-Ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65, 77–81.

    ↑

19. Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464, 493–4 (Mahoney JA); Peters’ American Delicacy Co Ltd v Heath (1939)

    61 CLR 457, 512–3; Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, 406.

    ↑

20. Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459, 471–2; Re George Raymond Pty Ltd (2000) 36 ACSR 381, 386–7.

    ↑

21. See the facts of Wain v Drapac [2012] VSC 156 (26 April 2012); discussed in Chapter 3 at [3.76]–[3.83].

    ↑

22. Submission 5 (Commercial Bar Association of Victoria) 4.

    ↑

23. For example see the facts of Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325.

    ↑

24. H A J Ford, W A Lee, M Bryan, J Glover, I G Fullerton, Thomson Reuters, Ford and Lee: The Law of Trusts (4 December 2014) [16.210], citing Hyman v Permanent Trustee Co of NSW Ltd (1914) 14 SR (NSW) 348; Carr v Carr (1987) 8 NSWLR 492; Re White [2001] Ch 392.

    ↑

25. Arhanghelschi v Ussher (2013) 94 ACSR 86.

    ↑

26. Submission 2 (Peter Agardy, Victorian Bar) 2.

    ↑

27. Submission 5 (Commercial Bar Association of Victoria) 5.

    ↑

28. Submission 3 (Professor Elise Bant and Associate Professor Matthew Harding, University of Melbourne Law School) 1.

    ↑

29. P Young, C Croft and M Smith, On Equity (Lawbook Co, 2009) 502.

    ↑

30. Ibid 502–3.

    ↑

31. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428–9, cited in Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325, 342.

    ↑

32. Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325, 352.

    ↑

33. Ibid.

    ↑

34. Ibid 352–3.

    ↑

35. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428–9, cited in Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325, 342.

    ↑

36. Submission 6 (Cornwall Stodart and Ari Bergman). According to Ari Bergman an example of where the doctrine of estoppel may assist unitholders can be found in Tomanovic v Global Mortgage Equity Corporation (2011) 84 ACSR 121,191; See Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming).

    ↑

37. Submission 7 (Institute of Legal Executives (Victoria)) 2.

    ↑

38. Underhill and Hayton, Law of Trusts and Trustees (16th edition, 2003) 27, cited in ‘Report on Variation and Termination of Trusts’, Scottish Law Commission, 2007, 7.

    ↑

39. ‘The rule in Saunders v Vautier and the Variation of Trusts’, Law Reform Commission of Saskatchewan, 1994, 6.

    ↑

40. H A J Ford, W A Lee, M Bryan, J Glover, I G Fullerton, Thomson Reuters, Ford and Lee: The Law of Trusts (4 December 2014) [16.090], citing Re Smith [1928] Ch 915; also see Sir Moses Montefiore Jewish Home v Howell & Co Pty Ltd (No 7) [1984] 2 NSWLR 406.

    ↑

41. P Young, C Croft and M Smith, On Equity (Lawbook Co, 2009) 501.

    ↑

42. P Young, C Croft and M Smith, On Equity (Lawbook Co, 2009) 501, citing CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic)(2005) 224 CLR 98.

    ↑

43. Ibid.

    ↑

44. P Young, C Croft and M Smith, On Equity (Lawbook Co, 2009) 501. According to Sin, a contractual right owed under the trust deed will also preclude the operation of the rule. See Kim Fam Sin, The Legal Nature of the Unit Trust (Clarendon Press, 1997) 117–8.

    ↑

45. Byrnes v Kendle (2011) 243 CLR 253, 286–8 (Heydon and Crennan JJ).

    ↑

46. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 84–5.

    ↑

47. Ibid 85.

    ↑

48. Smith v Anderson (1880) 15 Ch D 247 (James LJ).

    ↑

49. D Hayton, ‘Trading Trusts, Trustees’ Liabilities and Creditors’, in The International Trust (Jordans Publishing Ltd, 3rd edition, 2011) [7.2].

    ↑

50. Ibid.

    ↑

51. Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2007] VSC 40 (23 August 2007); Wain v Drapac [2012] VSC 156 (26 April 2012).

    ↑

52. [1973] AC 360.

    ↑

53. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 81–3.

    ↑

54. Ibid 81.

    ↑

55. Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, 375.

    ↑

56. Ibid 379.

    ↑

57. Ibid 380.

    ↑

58. Ibid 379.

    ↑

59. Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2007] VSC 40 (23 August 2007) [115]–[116].

    ↑

60. Submission 6 (Cornwall Stodart and Ari Bergman).

    ↑

61. Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2007] VSC 40 (23 August 2007) [116].

    ↑

62. Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325, 341.

    ↑

63. Croly v Good [2010] EWHC 1 (Ch) [8], cited in Wain v Drapac [2012] VSC 156 (26 April 2012) [274].

    ↑

64. Wain v Drapac [2012] VSC 156 (26 April 2012) [274].

    ↑

65. Ibid [277]–[279].

    ↑

66. Submission 6 (Cornwall Stodart and Ari Bergman) 6.

    ↑

67. See Mendy Chernos, Michael D. Briggs and Brandon Kain, ‘Recent Watershed Developments in Oppression Remedies and Shareholder Activism’ (2006) 40 Annual Review of Civil Litigation 33, 41–2, citing Diligent v RWMD Operations Kelowna Ltd (1976) 1 BCLR 36; Ontario Inc v Harold E Ballard Ltd (1991) 3 BLR (2d) 123; LeBlanc v Corporation Eighty-Six Ltd (1997) 192 NBR (2d) 321; McAteer v Devoncraft Developments Ltd (2001) 307 AR 1; Cohen v Jonco Holdings Ltd (2005) 192 Man R (2d) 252; also see Westfair Foods Ltd v Watt (1991) 79 DLR (4th) 55; Naneff v Con-Crete Holdings Ltd (1995) 23 OR (3d) 481.

    ↑

68. Ibid.

    ↑

69. Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325, 341.

    ↑

70. Victorian Law Reform Commission, Trading Trusts—Oppression Remedies, Consultation Paper No 21 (2014).

    ↑

71. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 2; also see Estmanco (Kilner House) Ltd v Greater London Council [1982] 1 All ER 437, 445 (Megarry VC).

    ↑

72. R P Austin and I M Ramsay, LexisNexis Butterworths, Ford’s Principles of Corporations Law (at 109) [10.030].

    ↑

73. R P Austin and I M Ramsay, LexisNexis Butterworths, Ford’s Principles of Corporations Law (at 109) [10.030]; Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 3.

    ↑

74. R P Austin and I M Ramsay, LexisNexis Butterworths, Ford’s Principles of Corporations Law (at 109) [10.030].

    ↑

75. Ibid [10.050].

    ↑

76. Ibid.

    ↑

77. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 2, citing Aleyn v Belchier (1758) 28 All ER 634, 637; also see Peters’ American Delicacy Co Ltd v Health (1939) 61 CLR 457, 502 (Dixon J); Ngurli Ltd v McCann (1953) 90 CLR 425.

    ↑

78. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 2, citing Nocton v Lord Ashburton [1914] AC 932 Vatcher v Paull [1915] AC 372, 378 (Lord Parker); LGSS Pty Ltd v Egan [2002] NSWSC 1171 (unreported, 4 December 2002, BC200207290) (Austin J).

    ↑

79. (1995) 182 CLR 432.

    ↑

80. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 85–6 [85]–[90] (Hely J); Arakella v Paton (2004) 60 NSWLR 334, 372 (Austin J).

    ↑

81. [1900] 1 Ch 656.

    ↑

82. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 4.

    ↑

83. For a full summary of the facts see Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 3.

    ↑

84. Allen v Gold Reefs [1900] 1 Ch 656, 671 (Lindley MR).

    ↑

85. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 3.

    ↑

86. Ibid 4.

    ↑

87. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 6, citing Cook v Deeks [1916] 1 AC 554, 564; Menier v Hooper’s Telegraph Works (1874) LR 9 Ch App 350 (James LJ).

    ↑

88. B P McPherson, ‘Oppression of Minority Shareholders Part I: Common Law Relief’ (1963) 36 Australian Law Journal 404, 406.

    ↑

89. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 6, citing Allen v Gold Reefs [1900] 1 Ch 656, 671 (Lindley MR); British Equitable Assurance Company Ltd v Baily [1906] AC 35; Peters’ American Delicacy Co Ltd v Health (1939) 61 CLR 457, 504–5 (Dixon J); Clemens v Clemens Bros Ltd [1976] 2 All ER 268.

    ↑

90. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 21, citing Shears v Phosphate Co-operative Co of Australia Ltd (1988) 14 ACLR 747; Ex parte Schwarcz (No 2) [1989] BCLC 427; M Chew, Minority Shareholders’ Rights and Remedies (Butterworths, 2000) 102–3.

    ↑

91. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 21, citing O’Neil v Philips [1999] 2 All ER 961, 967 (Lord Hoffman).

    ↑

92. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 23.

    ↑

93. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 23, citing Re A Company (No 003843 of 1986) [1987] 4 BCC 80; Re A Company (No 006834 of 1988) [1989] BCLC 365.

    ↑

94. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 23.

    ↑

95. John J Starr (Real Estate) Pty Ltd Robert R Andrew (A’asai) (1991) 9 ACLC 1372, 1375.

    ↑

96. Ibid.

    ↑

97. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 23.

    ↑

98. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 23–4, citing Gambotto v WCP (1995) 182 CLR 432, 447.

    ↑

99. (2000)170 ALR 65.

    ↑

100. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 83 [74], citing Lancedale Holdings Pty Ltd v Health Group Australasia Pty Ltd [1999] NSWSC 609 (23 June 1999).

     ↑

101. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 83 [74]–[76]; also see Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2007] VSC 40 [103] (23 August 2007); MJ Jacometti Pty Ltd v Boomaroo Nurseries & Wholesale Supplies Pty Ltd [2011] VSC 612 [48]

     (1 December 2011).

     ↑

102. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 82 [68].

     ↑

103. Ibid.

     ↑

104. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 83 [75]. Arguably, the approach adopted by Hely J is different to the test for oppression under s 232. Although conduct which applies to all shareholders equally is unlikely to be oppressive, see Catto v Hampton Australia Ltd (in liq) (No 3) (2004) 89 SASR 234, a finding of oppression is still possible; see John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) 9 ACLC 1372, 1375–6.

     ↑

105. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 83 [74]–[76].

     ↑

106. Ibid 83 [72].

     ↑

107. Submission 1 (Professor Matthew Conaglen, University of Sydney Law School) 3.

     ↑

108. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 103.

     ↑

109. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 70 [18].

     ↑

110. Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2007] VSC 40 (23 August 2007).

     ↑

111. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 91–3 also see 101–2.

     ↑

112. Submission 1 (Professor Matthew Conaglen, University of Sydney Law School) 3.

     ↑

113. Submission 6 (Cornwall Stodart and Ari Bergman) 7.

     ↑

114. Submission 1 (Professor Matthew Conaglen, University of Sydney Law School).

     ↑

115. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 95–6.

     ↑

116. Stefan Lo, ‘The continuing role of equity in restraining majority shareholder power’ (2004) 16 Australian Journal of Corporate Law 1, 12.

     ↑

117. Brunninghausen v Glavanics (1999) 46 NSWLR 538, 549–550 (Handley JA).

     ↑

118. This may depend upon the view taken regarding the role of contractual obligations in unit trusts, discussed above at [2.17]; also see

     Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 32.

     ↑

119. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 95.

     ↑

120. Ibid 96.

     ↑

121. Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2007] VSC 40 (23 August 2007) [103].

     ↑

122. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 82 [68].

     ↑

123. Armitage v Nurse [1998] Ch 241, 253 (Millett LJ).

     ↑

124. Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65, 82 [68] and [72].

     ↑

125. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 94–102.

     ↑

126. The continuing role that equitable considerations play in underpinning the statutory oppression remedy has been acknowledged in several cases; see Wain v Drapac [2012] VSC 156 (26 April 2012); Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, 406 [279] (Basten JA); Moepeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 61 ACSR 395, 405 [41]-[42].

     ↑

127. Part IV, Division 1 and Division 2, Trustee Act 1958 (Vic).

     ↑

128. Supreme Court (General Civil Procedure) 2005 (Vic), O54.02.

     ↑

129. Recently the Scottish Law Reform Commission released a series of reports and discussion papers on the variation and termination of trusts. In the final report the Commission made a number of detailed recommendations dealing with the alteration of beneficial interests and termination of trusts by court order. Although the Commission recommended expanding the current powers of the court, it explicitly stated that ‘the power of the court to alter trusts’ purposes does not apply to commercial trusts or to public trusts.’ See Scottish Law Reform Commission, Report on Trust Law, Report No 239 (2014) 244; also see recommendation 99, 246.

     ↑

130. For example s 461 and Part 5C.9.

     ↑

131. Re Gaydon [2001] NSWSC 473 (8 June 2001) [30].

     ↑

132. G E Dal Pont, D R C Chalmers and J K Maxton, Equity and Trusts Commentary and Materials (Lawbook Co, 4th edition, 2007) 687.

     ↑

133. G E Dal Pont and Tina Cockburn, Equity and Trusts in Principle (Lawbook Co, 2005) 323.

     ↑

134. Submission 6 (Cornwall Stodart and Ari Bergman) 6.

     ↑

135. H A J Ford, W A Lee, M Bryan, J Glover, I G Fullerton, Thomson Reuters, Ford and Lee: The Law of Trusts (4 December 2014) [15.090]; also see George v Kollias [2007] VSC 46 (5 March 2007).

     ↑

136. However a contrary view of the policy underpinning the UK Variation of Trusts Act 1958 was explored by analysing the decision of Goulding v James [1997] 2 All ER 239, 246, in P Luxton, ‘Variation of Trusts: Settlors’ Intentions and the Consent Principle in Saunders v Vautier’ (1997) 60 Modern Law Review 719; Also see Re Dion Investments Pty Ltd [2014] NSWCA 367 [46] (Barrett JA) [1] (Beazley P agreeing).

     ↑

137. In Re Estate of Barns (2011) 7 ASTR 349 Justice Robson held that the court did not have the power to make an order pursuant to s 63A to vary the terms of a trust deed unless all the beneficiaries consented. On appeal, Williams AJA (Buchanan JA and Bongiorno JA agreeing) held that the power of the court was not so limited: see Perpetual Trustee Victoria Limited v Barns (2012) 34 VR 387, 394 [35]. This was because the Attorney-General, who did not formally consent to the variation, was a party before the court and did not object to the making of an order under s 63A: see Perpetual Trustee Victoria Limited v Barns (2012) 34 VR 387, 395–6 [42]–[43].

     ↑

138. Trustee Act 1925 (ACT) s 81; Trustee Act 1936 (SA) s 59(c); Trustee Act 1973 (Qld) ss 94–95; Trustee Act (NT) s 50(a); Trustee Act 1898 (Tas) s 47; Trustee Act 1962 (WA) s 89; Trustee Act 1925 (NSW) s 81.

     ↑

139. Submission 6 (Cornwall Stodart and Ari Bergman) 6.

     ↑

140. Trustee Act s 63(3).

     ↑

141. This point has been recently emphasised in Re Dion Investments Pty Ltd [2014] NSWCA 367, (30 October 2014) [99] (Barrett JA) [1] (Beazley P agreeing) [117] (Gleeson JA).

     ↑

142. (2011) 7 ASTR 349.

     ↑

143. Re Estate of Barns (2011) 7 ASTR 349, 359 [35], citing Royal Melbourne Hospital v Equity Trustees Ltd (as trustee of the estate of Langford (deceased)) (2007) 18 VR 469, 506 [175]; also see Riddle v Riddle (1952) 85 CLR 202, 214 (Dixon J) 221 (Williams J) 227 (Fullagar J in dissent on a separate point); Arakella v Paton (2004) 60 NSWLR 334; Westfield Qld No 1 v Lend Lease Real Estate (2008) 1 ASTLR 525, 541–2; Trust Company Fiduciary Services Pty Ltd v Challenger Managed Investments Ltd (2008) 68 ACSR 356; Re Arthur Brady Family Trust; Re Trekmore Trading Trust [2014] QSC 244 (30 September 2014); Re Dion Investments Pty Ltd [2014] NSWCA 367 (30 October 2014), [92]–[99] (Barrett JA) [1] (Beazley P agreeing) [117] (Gleeson JA).

     ↑

144. Re Downshire Settled Estates; Marquess of Downshire v Royal Bank of Scotland [1953] Ch 218, 248, cited in Royal Melbourne Hospital v Equity Trustees Ltd (as trustee of the estate of Langford (deceased)) (2007) 18 VR 469, 502 [156].

     ↑

145. H A J Ford, W A Lee, M Bryan, J Glover, I G Fullerton, Thomson Reuters, Ford and Lee: The Law of Trusts (4 December 2014) [15.230], citing s 59C(3)(b).

     ↑

146. (1984) 37 SASR 545, 559; H A J Ford, W A Lee, M Bryan, J Glover, I G Fullerton, Thomson Reuters, Ford and Lee: The Law of Trusts (4 December 2014) [15.230].

     ↑

147. Benzija v Adriatic Fisheries Pty Ltd (1984) 37 SASR 545, 559.

     ↑

148. Ibid 562.

     ↑

149. Ibid 559.

     ↑

150. Ibid 562.

     ↑

151. Ibid 563.

     ↑

152. Trust Company Fiduciary Services Ltd v Challenger Managed Investments Ltd (2008) 68 ACSR 356, 363–4 [24], citing Arakella v Paton (2004) 60 NSWLR 334, 360 [112].

     ↑

153. Although this point was not expressly discussed, its correctness appears to have been assumed in the reasoning of Barrett JA in Re Dion Investments Pty Ltd [2014] NSWCA 367 (30 October 2014) [87]–[100] (Barrett JA), [1] (Beazley P agreeing).

     ↑

154. Submission 6 (Cornwall Stodart and Ari Bergman) 6.

     ↑

155. Chapman v Chapman [1954] AC 424, 445 (Viscount Simonds), citing Re Walker [1901] 1 Ch 879, 885.

     ↑

156. Arakella v Paton (2004) 60 NSWLR 334, 360 [112]; citied in H A J Ford, W A Lee, M Bryan, J Glover, I G Fullerton, Thomson Reuters, Ford and Lee: The Law of Trusts (4 December 2014) [15.270].

     ↑

157. H A J Ford, W A Lee, M Bryan, J Glover, I G Fullerton, Thomson Reuters, Ford and Lee: The Law of Trusts (4 December 2014) [15.270].

     ↑