2. Trusts and companies in Victoria


  1. 2.1 This chapter explores the key features of trusts and companies that relate to the grant of an oppression remedy. The chapter focuses on the different types of express trusts, with an emphasis on those aspects that relate to trading trusts.
  2. 2.2 A theme running through the chapter is the twin distinction between investment/donatory trusts,1 and investment/trading trusts. The analysis introduces the key features of the express trust and shows how these features are adapted to trading trusts.
  3. 2.3 It is important to note at the outset that the idea of a trading trust arguably only reflects a difference in function, rather than a distinction between trading and other forms of trust based on principle. Similarly to other forms of investment trusts, a trading trust has a trustee which holds trust property on behalf of beneficiaries. The trading trust differs fundamentally in the sense that the trustee trades—i.e. actively carries on a business. The overall question this consultation paper seeks to address is whether this functional difference generates different legal outcomes, in particular whether an oppression remedy is, or ought to be, available.
  4. 2.4 The last sections of the chapter deal with the key features of the corporate structure, in particular the doctrine of separate legal personality. This chapter shows how the doctrine relates to trading trusts, and the need for shareholder remedies. The purpose of this analysis is to lay the groundwork for Chapter 3 by illustrating the significance of extending shareholder remedies to trading trusts.

Description of the trust

  1. 2.5 A trust has been defined as ‘an institution developed by equity and cognisable by a court of equity.’2 The essence of the institution is that a trust will exist ‘when the owner of a legal or equitable interest in property is bound by an obligation, recognised by and enforced in equity, to hold that interest for the benefit of others, or for some object or purpose permitted by law.’3
  2. 2.6 Thus, the institution of a trust contains several core elements, namely, ‘the trustee, the trust property, the beneficiary or charitable purpose, and the personal obligation annexed to the property.4 Despite these elements, there are different types of trusts: express trusts created by the intention of the settlor, resulting trusts created by operation of law, constructive trusts and statutory trusts. However, this consultation paper is only concerned with express trusts.

Express trusts

  1. 2.7 Express trusts are created by the will of the settlor, in the sense that the settlor intends to make a gratuitous transfer of property to the trustee.5 An express trust can arise through a will where the testator takes the place of the settlor, or inter vivos.6
  2. 2.8 Since the genesis of an express trust is the intention of the settlor, an express trust will be created by a trust deed, which contains the rights, duties and powers of the trustees and beneficiaries. It is important to note that in principle a trust deed is capable of excluding many of a trustee’s duties, other than those which constitute ‘the irreducible core’7 of trusteeship. Indeed, the extent to which a trustee can exclude their obligations, thereby indemnifying themselves against a suit from the beneficiaries, is unclear.
  3. 2.9 Although the trust deed contains the primary duties owed by the trustee, a trustee will also owe fiduciary duties, and other obligations in equity, directly to the beneficiaries. Breach of these duties may constitute a breach of trust, making the trustee personally liable. Furthermore, express trusts are broadly divided into two categories: discretionary and unit trusts.

Discretionary trusts

  1. 2.10 A discretionary trust describes a situation where a beneficiary’s entitlement to the trust property is at the discretion of the trustee. The right of the beneficiary to trust property:

is not immediately ascertainable. Rather, the beneficiaries are selected from a nominated class by the trustee or some other person and this power may be exercisable once or from time to time.8

Family trusts are usually in the form of discretionary trusts, since the trustee is able to decide the individual distribution and the amount of taxable income to the beneficiaries on an annual basis.9

  1. 2.11 A discretionary trust is generally structured for tax reasons and to minimise potential liability to the beneficiaries. Typically, the trustee will be a corporate trustee in order to take advantage of the company’s separate legal personality. The directors of the corporate trustee are usually beneficiaries. A discretionary trust also usually has an ‘appointor’ who has the power to appoint and remove trustees. In practice, therefore, the appointer controls the trust, and as a beneficiary will generally receive the income from the trust. 
  2. 2.12 The discretionary nature of the beneficiaries’ interest raises an important question as to whether a beneficiary has an interest in the trust property. However, the authorities on this question are divided.10 Even where a beneficiary has no proprietary interest, a trustee will still owe duties to the beneficiary including fiduciary duties and the duty of prudent investment. Moreover, a beneficiary ‘generally has sufficient interest to approach the court to have the trust duly administered.’11

Unit trusts

  1. 2.13 A unit trust differs from a discretionary trust, as the unit trust deed specifies the objects that are entitled to a beneficial interest in the trust property.12 As the name suggests, the beneficial interests are divided into units of the trust property. Bergman has defined the unit trust as a ‘trust that has been established whereby the trustee of the trust holds property on behalf of unitholders whose units provide a substantially fixed proportional entitlement or interest’.13
  2. 2.14 As an investment vehicle, the unit trust can either be public or private. In Australia, public unit trusts are typically used for passive collective investment rather than active investment by the unitholder, or the carrying on of a business by the trustee.14 For instance, in the context of superannuation, a beneficiary will invest money into a superannuation fund, which will usually delegate their duty of investment to a fund manager or asset consultant. Another example is managed investment schemes, which are regulated by Chapter 5C of the Corporations Act 2001 (Cth).
  3. 2.15 Private unit trusts are also used for passive collective investment. However, private unit trusts can be used to create a structure where the corporate trustee actively carries on a business rather than merely investing the trust property and distributing the income to beneficiaries.
  4. 2.16 Sin has argued that a fundamental difference between unit trusts and other forms of express trusts is the absence of a settlor.15 This reinforces the distinction between trusts for commercial purposes, and trusts designed to reflect a gratuitous transfer of property from the settlor to the trustee.16
  5. 2.17 Like discretionary trusts, the trust deed of a unit trust is the primary source of rights and obligations. However, in private unit trusts the rights and obligations are often located in unitholders’ agreements that create a layer of obligation additional to the unit trust deed, often between individual unitholders, similar to shareholders’ agreements in proprietary companies.17 Ordinarily, the doctrine of privity would prevent a unitholder from obtaining remedies in contract from another unitholder.18 A unitholder agreement, however, can alter the relationship between unitholders, possibly preventing the requisite conduct for the grant of an oppression remedy. For example, a unitholder agreement can provide that majority unitholders have a broad discretion to remove a minority unitholder, which would have implications for any finding of oppression in the trading trust context.19 
  6. 2.18 The role of contract in the context of unit trusts beyond a formal unitholder agreement is unclear. The traditional view is that the relationship between a trustee and a beneficiary is governed by the ordinary principles of trust law and equity.20 However, it has recently been suggested that a contractual relationship can coexist with, and arise out of, the traditional fiduciary relationship of trustee and beneficiary, since this is based on the reality that in contrast to a discretionary trust, unitholders will typically provide capital for a subscription of a specific quantity of units.21


1 In your view, what roles do the intention of the settlor and the law of contract play in unit trusts?


  1. 2.19 It is not always clear whether the interest of a unitholder is of a proprietary character. In theory, a beneficiary of a trust is supposed to be beneficially entitled in equity to the trust property. However, the High Court has recently emphasised that the provisions of the trust deed are the starting point in considering whether a unitholder has a proprietary interest in the trust property.22 It has been suggested that implicit within this reasoning is the possibility that the trust deed is capable of excluding a unitholder’s proprietary right ‘in the underlying trust assets.’23 According to Tarrant there are broadly two types of unit trusts:

trusts where the trust fund is held by unitholders each holding a beneficial interest, or equitable interest of some type, in each individual asset; and trusts where the unitholders have an interest in the trust fund as a whole but the trust deed specifically provides that unitholders have no interest at all in the underlying trust assets.24

The High Court has recognised that rights to particular trust assets may be excluded by the terms of the trust deed.25 Moreover, even in that case the beneficiaries may approach the court to have the trust duly administered.26

  1. 2.20 It has been suggested that the proprietary nature of the beneficiary’s right is the basis upon which a beneficiary can enforce a remedy against the trustee or third parties. Indeed, a trust:

is not a mere obligation. It may confer on a beneficiary the equitable ownership of a trust asset, or a partial equitable interest in the asset. Even if he has neither, a beneficiary can enforce the trust against anyone to whom a trust asset may come, except a bona fide purchaser for value without notice, so he has a proprietary right or interest in a broader sense of the term. Though some remedies sought by beneficiaries do not turn upon the existence of a proprietary interest (and certainly not a proprietary interest in the narrow sense of a transmissible interest), the proprietary nature, in the wide sense, of a beneficiary’s rights, is at the heart of the proprietary remedy which can be asserted against trustees and others into whose hands trust property can be followed or traced.27

Whether an oppression remedy is analogous to a proprietary remedy, which a beneficiary can enforce against a trustee or third parties, is unclear. However, in Wain v Drapac Justice Ferguson accepted that it was necessary to consider whether the parties were beneficially entitled to the units, prior to considering whether the parties could obtain an oppression remedy.28 Following the above reasoning, it is necessary to demonstrate that a unitholder has a proprietary interest in the units under the trust. It is not clear whether this means that in order to obtain an oppression remedy a unitholder must demonstrate that they possess a proprietary interest in the whole of the trust property.

  1. 2.21 A comparison with the legal position of company shares would suggest that this is not the case, as a share grants no beneficial interest in the assets of the company.29 However, it is strongly arguable following Drapac that a beneficiary must show that they possess a proprietary interest in the units in order for an oppression remedy to be granted.


2 How relevant or important is the characterisation of a beneficiary or unitholder’s interest?


  1. 2.22 The possibility of exclusion through the trust deed arguably collapses some of the distinctions between an interest under a unit trust and a share in a company. However, it is conventionally thought that there is a fundamental conceptual difference between the two.30 Indeed, a share:

confers upon the holder no legal or equitable interest in the assets of the company;
it is a separate piece of property… But a unit under the trust deed before us confers
a proprietary interest in all the property which for the time being is subject to the
trust deed…31

Arguably, a degree of equivalence between the interests of shareholders and unitholders reinforces the argument that similar remedies, including oppression remedies, should be available to the beneficiaries of trading trusts.

  1. 2.23 Indeed, Sin has argued that unit trusts and companies are similar in the sense that both are constituted through contract, namely, the trust deed and the company constitution. For Sin, the drafting of a unit trust deed ensures that:

a unit is a single chose in action, and therefore a kind of personal property, which is transferable and in many cases redeemable. It is a chose comprising a bundle of contractual rights as well as rights conferred by statute. In ordinary cases, the trust fund of a unit trust may be characterized as a sum of capital and a unit only confers on its owner a right in money, being a proportion of the net value of the trust fund calculated and realizable as the trust deed may provide; a unitholder has no right in individual assets.32

  1. 2.24 Even if Sin’s argument is not adopted, the functional similarity between the unit trust and company might be such that the value of the shares and units is examined cumulatively.33 This issue will be explored more fully in Chapter 3.

Trading trusts

Definition of trading trusts

  1. 2.25 Ford and Hardingham have suggested that:

the distinction between a trading trust and other trusts is that some property held by the trustee is employed under the terms of the trust in the conduct of a business. In most trading trusts, it will be the trustee who conducts the business but in some, the terms of the trust require the trustee to stand by while a third conducts the business using the trust property on behalf of the beneficiaries.

As a distinguishing mark, the concept of the conduct of a business may be difficult to apply in a marginal case. But it sets up a contrast between the direct employment of trust property in the commercial activity of the trustee and investment by the trustee in the commercial activity of some other entrepreneur.34

  1. 2.26 Justice Hayton has defined trading trusts extra-judicially as existing where:

under the terms of a trust, trust property held by trustees is used for the conduct of a business. In a private trust, it will normally be the trustees who carry out the trading activities but in a public trust (where the opportunity to become a beneficiary may lawfully be offered to the public) the trustees will be custodian trustees, having some extra monitoring duties imposed upon them in respect of a manager, like the manager of an authorised unit trust who will conduct the business for the benefit of the ‘investor-beneficiary’ who will have purchased the status of a beneficiary. In a private trust, beneficiaries will normally be ‘donee-beneficiaries’ as the objects of the settlor’s bounty, although they can be investor-beneficiaries who have purchased their beneficial interests.35

  1. 2.27 Applying these definitions, a trading trust can either be public or private, in the sense that investment in the trust is open to the public, and can include discretionary trusts, unit trusts or a mixture of the two.36 Although the terms of reference potentially include both public and private trusts, in the Commission’s view, the definition of trading trust should be limited to private trusts in the context of oppression remedies. This is because public trusts are in practice often regulated by Chapter 5C of the Corporations Act. From a practical standpoint, it is also arguable that the introduction of oppression remedies is less necessary in the context of public trusts since one of the distinguishing features of these trusts is the ability of the unitholders to redeem their units.37 As will be shown in Chapter 3, the rationale of applying oppression remedies to trading trusts is often to allow unitholders to redeem their units on more favourable terms than provided for under the trust deed. These terms may be calculated analogously to an offer on-market.
  2. 2.28 As Dal Pont, Chalmers and Maxton explain, ‘the main characteristic of the ‘trading trust’ is that the trust property is used in the conduct of business.’38 A unit trust can clearly meet this definition when the corporate trustee actively uses the trust property for carrying on a business. The trustee of a family trust, which utilises a discretionary trust structure, will also usually fall within the definition of a trading trust. 
  3. 2.29 According to Ford and Hardingham, the trustee of a trading trust:

may hold the business on discretionary trust for a delineated range of objects; in other cases it may hold on fixed trust for unitholders. The former model may be appropriate where the objects are members of a particular family – for example, the original proprietor, his spouse and children. The latter model will be appropriate where the beneficiaries are more at arm’s length being, for example, former partners in the business whose original equity is now defined by reference to units held under the trust. The latter model is also appropriate where it is envisaged that, at a later time, there may be inducted into the business more ‘partners’.39


3 Is there another, more appropriate definition of ‘trading trust’? Could it include managed investment schemes?


  1. 2.30 In the Commission’s view, an oppression remedy will rarely be appropriate in the context of a discretionary trust. A unitholder will have provided consideration for their beneficial interest in the trust. However, a beneficiary under a family trust will often have provided no consideration for their beneficial interest in the trust estate. In such a case, a buyout is impossible since any interest that a beneficiary has will be at the discretion of the trustee. It is arguable, however, that an oppression remedy is appropriate in a limited range of circumstances.
  2. 2.31 Suppose that A and B are directors and shareholders of a company which is the corporate trustee of a family trust and jointly exercise powers of the appointor under the trust deed. The objects of the trust will ordinarily include A and B and other family members such as spouses, children and grandchildren. If it is supposed that the trustee only makes distributions to A and B, it is unlikely that the other family members hold a beneficial interest in the trust estate.40 Arguably, following the reasoning of Vigliaroni,41 A or B could seek an oppression remedy against the other as an object of the trust, or the corporate trustee. Despite the presence of a discretionary trust, the structure closely resembles a small proprietary company where an oppression remedy would ordinarily
    be granted.


4 Are oppression remedies appropriate for all trading trusts?

5 Are there circumstances in which an oppression remedy might be appropriate for beneficiaries of a discretionary trust?



  1. 2.32 The structure of a unit trust will often be determined by the role of the unitholders in the business. Usually, a unitholder will provide capital to a unit trust as an investment in exchange for units. In this case, the management of the business will be conducted by the directors of the corporate trustee rather than the unitholder. Moreover, the unitholder will not ordinarily own shares in the corporate trustee. In fact, this scenario closely resembles the division between management and shareholders.
  2. 2.33 However, an alternative scenario is where parties use a unit trust to structure a joint venture. In this case, the original parties might be directors and shareholders in the corporate trustee and unitholders. Control of the business will ordinarily be determined by the percentage of shares in the corporate trustee. As will be shown in Chapter 3, the case law suggests that the way the unit trust is structured is highly relevant to the question of whether an oppression remedy can be granted.
  3. 2.34 The role that a unitholder wishes to have in management is dependent upon the nature of the investment. As Spavold explains:

An investor who contributes substantially all of the assets to be used in a business with which he is very familiar will want to have substantial involvement in the management of the business. In contrast involvement in management (except in extraordinary circumstances) will not be desired by an investor who only wishes to pool his funds with other persons so that the pooled fund may be efficiently and profitably invested by professional investment managers who are familiar with the financial markets.42

This is relevant in the context of oppression, since as will be shown in Chapter 3, the oppression remedy is most common in the case of small proprietary companies where the shareholders actively manage the business.

A comparison of trading trusts and corporations

  1. 2.35 A fundamental difference between a trust and company is that the latter is deemed at law to be a separate legal entity. The doctrine of separate legal personality means that:

[for] certain purposes a company is a legal entity separate from the legal persons who became associated for its formation or who are now its members and its directors. For certain purposes there is a corporate screen around the members and directors. Courts often refer to that screen as the ‘corporate veil’.

To say that a company is a separate legal entity means that the company can have legal rights, privileges, duties or liabilities without them being rights, privileges, duties or liabilities of its members or directors.43

The importance of the doctrine of separate legal personality is illustrated by the fact that it applies even to a proprietary company, which only has a single controlling shareholder, who is also the manager of the business.44 Importantly, the reasoning from Salomon v Solomon & Co Ltd suggests that the doctrine applies even where the company has no substantial capital.45

  1. 2.36 As we have seen, a trust is conceptually different from a company. Like a company, a trust requires real people to administer the trust property, and carry out the terms of the trust deed. However, unlike a company, a trust has no separate personality at law, meaning that individuals who act as trustees are personally liable in an action against the trustee.46 
  2. 2.37 In practice, the trustee can utilise two devices to mitigate personal liability. The first is to insert exclusion clauses into the terms of the trust deed. However, the validity of these clauses, and the extent to which they can exclude a trustee’s fiduciary duties, remains unclear.47
  3. 2.38 Secondly, the trustee will usually be a corporate trustee. This affords certain tax advantages and limited liability, which follows from the doctrine of separate legal personality. Thus, a clear demarcation between trusts and companies is somewhat artificial since in practice businesses adopt a structure which utilises both. However, the conceptual distinction is important since there is a clear difference at law between the two entities. Indeed, the problem that this reference seeks to address reflects this.
    Despite clear conceptual differences, Victorian case law has suggested that oppression remedies, which are shareholder remedies, can also apply to trusts. These issues will be explored further in Chapter 3.
  4. 2.39 The separate legal personality of the company means, however, that the company is the proper plaintiff in an action against the directors.48 Thus:

if a company sustains a loss for which it has a right of action a member as such does not have a direct right of action for the loss. Under the separate entity doctrine the company’s loss is not in law the shareholder’s loss, even though the company’s loss might reduce the value of the member’s shares.49

It follows that, in a proceeding against the directors or other members of management designated with corporate authority whose conduct would have amounted to a legal wrong, the company is the proper plaintiff. However, as the directors control the company, including the ability to initiate legal proceedings, in practice it is unlikely that the company would seek redress for defective management. This means that unlike beneficiaries, shareholders have little direct recourse against management.

  1. 2.40 However, the general law and the statutory regime under the Corporations Act create a number of exceptions to the rule from Foss v Harbottle that provides shareholder remedies either against the company or directors.50 The oppression remedy under section 232 of the Corporations Act is perhaps the broadest remedy available to a shareholder.51 Oppression is a broad concept, which includes excessive payment to management, issuing shares for the purpose of diluting a member’s shareholding and denying a shareholder access to information.52 Where a shareholder has the requisite standing and oppression is proven, the court has the power to grant wide-ranging remedies including:
  • winding up
  • modification of the company’s constitution
  • the compulsory purchase of shares from either the company or another shareholder.53


  1. 2.41 One question that this reference seeks to answer is whether the Corporations Act gives the court power to grant an oppression remedy in an action by the shareholder/beneficiaries against the trustee of a trading trust. The current legal position with respect to this question is unclear. A line of cases has held that the appropriate recourse of beneficiaries is limited to the forms of equitable relief.54 However, an alternate line of cases has held that the court’s power under section 232 is not limited to an action against the company, as such.55 These cases are discussed in more detail in Chapter 3.
  2. 2.42 Unlike trading trusts, the Corporations Act imposes numerous formal requirements upon companies, such as reporting and auditing requirements.56 Moreover, companies must apply to be formally registered with the Australian Securities and Investment Commission.57 In the case of small proprietary companies, which have no formal constitution, the Corporations Act contains provisions which act as replaceable rules, which together form the basis of the constitution.58 However, these replaceable rules will not apply to proprietary companies with a single member who is also the sole director.59
  3. 2.43 The situation is formally different for private unit trusts. As Spavold explains:

The unit trust is constituted by a deed of trust. Under the terms of the trust deed certain property is to be held in trust for the benefit of persons known as ‘unit holders’. Each unit holder owns a ‘unit’ in the trust fund. The beneficial interest of the trust is made up of a number of units. Each unit is equal to every other unit. When an investor purchases a unit from the trustee or manager the money paid for the unit becomes part of the trust property and is invested by the trustee. The deed of trust regulates the rights powers and duties of the trustee unit holders and if applicable the manager. In this manner it serves the same purpose as the memorandum of association and articles of association of a company.60

Although the formal requirements are different, arguably the function that a unit trust deed serves is essentially the same as a company constitution.


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