Korda v Australian Executor Trustees (SA) Ltd - [2014] VSCA 65

SUPREME COURT OF VICTORIA
COURT OF APPEAL

S APCI 2013 0033

MARK KORDA and BRYAN WEBSTER and S E A S SAPFOR FORESTS PTY LTD (ACN 007 872 120) and S E A S SAPFOR HARVESTING PTY LTD (ACN 007 511 211) and GUNNS LIMITED (ACN 009 478 148)	First Applicant
	Second Applicant Third Applicant Fourth Applicant Fifth Applicant
v
AUSTRALIAN EXECUTOR TRUSTEES (SA) LIMITED (ACN 007 870 644)
	Respondent

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JUDGES:	MAXWELL P, OSBORN JA and ROBSON AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	23 July 2013
DATE OF JUDGMENT:	10 April 2014
MEDIUM NEUTRAL CITATION:	[2014] VSCA 65
JUDGMENT APPEALED FROM:	[2013] VSC 7 (Sifris J)

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EQUITY – Trusts – Investment scheme – Prospectus – Invitation to invest in timber plantations – Cultivation, milling and sale of timber to be undertaken by operating companies – Trust Deed – Trustee to hold proceeds of timber sales for investors – Liquidation of operating companies before sale proceeds paid to Trustee – Whether proceeds of sale impressed with trust upon receipt by operating companies – Whether intention to create trust of proceeds – Intention of parties to investment transaction – Commercial necessity – Consideration of surrounding circumstances and nature of transaction – Trust intended – Appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr P D Crutchfield SC with Mr R G Craig	Ashurst
For the Respondent	Mr J Lockhart SC with Mr M I Borsky	Sparke Helmore

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MAXWELL P
OSBORN JA:

Summary

We have had the advantage of reading in draft the reasons for judgment of Robson AJA. His Honour has clearly identified the issues which arise on the appeal, and has comprehensively set out the content of the relevant documents and the respective arguments of the parties to the appeal. (In what follows, we use terms as defined in his Honour’s reasons.)

We have, however, reached a different conclusion from Robson AJA as to the disposition of the appeal. We respectfully agree with the trial judge’s conclusion that the relevant parties intended the proceeds from the harvesting of the timber (or, where relevant, from the sale of plantation lands) to be held on trust for the covenantholders upon receipt. We would therefore grant leave to appeal, but dismiss the appeal. Our reasons may be summarised as follows.

The Court is concerned with an investment scheme. It was investors who funded the commercial enterprise of timber growing and harvesting carried on by the Forest Company and the Milling Company. The intention which had to be ascertained was the intention of the parties to the typical investment contract, that being the contract made when an investor applied for — and Forest Company issued — a ‘covenant’ pursuant to a prospectus.[1]
[1]See the preamble to the Trust Deed: [45] below.

The applicants accepted that this was so, and that it was therefore necessary to discern the intention and expectation of the investor at the time of the making of the investment contract, with respect to the protection of his/her…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] VSCA 65
Decision Date: 10 April 2014

CaseChat Overview and Summary

Korda v Australian Executor Trustees (SA) Ltd was a case before the High Court of Australia, where the primary issue was whether a trust was created over the proceeds of timber sales before they were paid to the Trustee. The appellant, Korda, had invested in a scheme promising returns from timber plantations, managed by operating companies. Upon liquidation of these companies before the sale proceeds were transferred to the Trustee, a dispute arose over the ownership of those proceeds.

The legal question at the heart of this case was whether a trust existed over the proceeds of timber sales from the moment the operating companies received the sale proceeds, or if the trust was only established when the proceeds were paid to the Trustee. The court needed to determine the intention of the parties involved in the investment transaction and assess the surrounding circumstances and nature of the transaction to ascertain if a trust was indeed intended.

In delivering the judgment, the High Court examined the terms of the Trust Deed and the prospectus, along with the surrounding circumstances of the investment scheme. The Court concluded that there was a clear intention to create a trust over the proceeds of the timber sales. The trust was intended to operate from the moment the operating companies received the sale proceeds, as evidenced by the commercial necessity and the nature of the investment transaction. The appeal was dismissed, affirming the lower court's decision that the proceeds were impressed with a trust from the outset.

The final orders of the Court upheld the decision that the proceeds of the timber sales were held on trust for the investors from the moment they were received by the operating companies. This ruling reinforced the importance of examining the intention of the parties and the broader context of the transaction in determining the existence and scope of a trust.

Orders