Korda v Australian Executor Trustees (SA) Ltd

The High Court of Australia heard an appeal concerning a timber plantation investment scheme operated by two companies, the "Forest Company" and the "Milling Company". The dispute arose between Australian Executor Trustees (SA) Ltd ("AET"), acting as trustee, and the appellants, who were parties to agreements for the sale of standing timber and scheme land. AET contended that the proceeds from these sales were subject to an express trust in favour of the scheme investors, referred to as "Covenantholders".

The central legal issue before the High Court was whether the Forest Company and the Milling Company, by entering into a Trust Deed with AET as trustee for the holders of interests they issued, had created an express trust over the proceeds of the sale of standing timber and scheme land. This required the Court to determine if the intention to create such a trust was clear, and if the subject matter and beneficiaries were sufficiently certain, particularly in a commercial context where the interests of creditors might be affected.

The High Court reasoned that the established legal principle requires a clear intention to create a trust, with certainty as to the trust property and beneficiaries. The Court found that the language of the relevant documents did not clearly indicate an intention to create a trust of the broad scope contended for by AET. While the commercial objectives of the scheme were to provide investors with exposure to the forestry operations, this did not, in itself, demonstrate a joint intention to create an express trust that would shield investors from the financial fortunes of the operating companies. The Court distinguished the situation from cases where a trustee clearly holds property on behalf of others, noting that the receipt of investment funds by the Forest Company did not equate to holding property specifically for the benefit of Covenantholders in the manner required for an express trust.

Consequently, the High Court allowed the appeal, setting aside the orders of the Court of Appeal and the Supreme Court of Victoria. The Court declared that AET was not entitled to the proceeds of the tree sale agreement or the land sale contracts, and ordered that AET pay the appellants' costs.