5. Possible reform mechanisms

Table of contents

Amendment to the Trustee Act 1958 (Vic)

  1. 5.1 As outlined in Chapter 1, the Commission’s view is that the current law needs to be reformed for reasons of clarity, simplicity and fairness. This leads to the central recommendation that the Trustee Act 1958 (Vic) provide such a remedy for beneficiaries of trading trusts subject to oppressive conduct.

Should the oppression remedy apply to all trusts?

  1. 5.2 As stated in Chapter 1 and further explained in Chapter 2 the scope of the amendment seeks a balance between inclusivity, so as to afford a remedy to any beneficiary subject to oppressive conduct, and pragmatism, in that some forms of trading trusts are already subject to significant regulation and should be excluded.
  2. 5.3 For this reason, the Commission has adopted a definition of ‘trading trust’ that includes all trusts where ‘some property held by the trustee is employed under the terms of the trust in the conduct of a business’.1 This would include all forms of trading trusts, excluding only those already subject to extensive regulation and supervision.
  3. 5.4 This would mean that the recommended provisions in the Trustee Actwould be worded to also apply to all trading trusts, including discretionary trusts, with the only explicit exclusions applying to managed investment schemes,2 charitable trusts3 and regulated4 and statutory5 superannuation trusts.
  4. 5.5 This is in line with the broad, functional approach adopted by the Commission, to maximise remedies and protection from oppression.

What effect should the trust deed have on the oppression remedy?

  1. 5.6 In the consultation paper, the following question was asked:

What effect should the trust deed have on the availability of any oppression remedies included in the Trustee Act? Should it be possible to exclude their operation by express provisions in the trust deed?6

  1. 5.7 In formal submissions and during other consultations, the Commission received a number of responses.
  2. 5.8 Ari Bergman submitted that:

the Oppression Remedies should not be capable of being excluded by express provisions in the trust deed: otherwise it would defeat the purpose of the remedies, which is to provide the minority beneficiaries with protection against commercially unfair practices on the part of the trustee or those who control the trustee.7

  1. 5.9 Most participants at the roundtable agreed with the above proposition. Furthermore, participants at the roundtable generally argued that the court should have the express power to override or amend the terms of the trust deed. This was based on the view that otherwise, the effect of the deed could lead to manifest injustice and undermine the whole concept of an oppression remedy.
  2. 5.10 However, some participants felt that the power of the court should be restricted or guided by a generally worded provision ensuring that the court, in exercising its discretion, have regard to the overall terms of the trust.
  3. 5.11 The Commission favours an oppression remedy for trading trusts that is akin to the statutory remedy under the Corporations Act 2001 (Cth). Section 233(1)(b) of that Act enables a court to modify the company’s existing constitution. Moreover, some legislative schemes, which provide an oppression remedy for trading trusts, enable a court to modify the terms of the trust deed.8
  4. 5.12 The Commission’s view is that a similar provision should accompany the amendment of the Trustee Act. The Commission agrees with the above submissions that without a broad power to modify the trust deed, a court may not be able to effectively remedy the oppressive conduct.
  5. 5.13 The Commission considers that the Supreme Court of Victoria is the appropriate court for the proposed amendment. The Corporations Act defines the term ‘court’ as including ‘the Supreme Court of a State or Territory’.9 As will be seen below, difficulties may arise where a claimant seeks an oppression remedy in a court which is not vested with jurisdiction under the Corporations Act.10 However, the Supreme Court of Victoria has jurisdiction to make orders under both the Trustee Act (including the proposed amendments) and the Corporations Act.

Recommendation

1 The Trustee Act 1958 (Vic) should provide for the beneficiaries of trading trusts who are subject to oppressive conduct to be able to apply to the Supreme Court of Victoria for a remedy:

(a) in respect of any trading trust other than a managed investment scheme, a regulated or statutory superannuation trust or a charitable trust 

(b) notwithstanding compliance by the trustee with the trust deed.

 

Form of the amendment

  1. 5.14 A number of further issues will arise and decisions will need to be made if the recommended amendments are adopted. These include:
  • the range of conduct that constitutes ‘oppression’
  • the scope of the remedies to be available to oppressed beneficiaries
  • whether and to what extent they should be equivalent to those available under Part 2F.1 of the Corporations Act11
  • who should be able to apply for an order.

What constitutes ‘oppression’?

  1. 5.15 As outlined in Chapter 3, numerous reported cases have defined oppressive, unfairly prejudicial or unfairly discriminatory conduct under Part 2F.1 of the Corporations Act.12 The fact that there has been such significant consideration of these issues by the courts and that they have been interpreted broadly argues strongly for the recommended provisions in the Trustee Act to be worded as closely as possible to the existing provisions in the Corporations Act.
  2. 5.16 This position was also supported in two submissions received by the Commission.13
  3. 5.17 In the submission received from the Federal Court of Australia, Chief Justice Allsop, writing on behalf of the Court after consultation with the other judges, stated:

It would be unfortunate if the amendments created a third or even fourth set of provisions which were different in substance (or form) from the existing oppression remedies in ss 232 and 233 of the Corporations Act. Put another way, particular fact situations often engage the Corporations Act and the Trustee Act. Where there was no difference in substance between the facts applying to a corporation and a trading trust, it would be an unhappy state of affairs if the application of the oppression remedies resulted in different outcomes. Therefore, there is merit in considering amending the Trustee Act to provide for the oppression remedies akin to those in ss 232 and 233 of the Corporations Act. The principles which underpin those provisions and the court’s consideration of those provisions demonstrate the flexibility necessary in seeking to make available remedies under the broad umbrella of ‘oppression’: see, by way of example, Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR at [59], [61]–[65] and [176]–[179]. The need for flexibility arises because the extent of human endeavour, ingenuity and ‘unfair’ conduct is itself limited only by the human imagination.14

  1. 5.18 As discussed below, the Commission endorses this submission regarding the scope of the available remedies to relieve against oppressive conduct. It follows that the meaning of oppression under the amendment should be consistent with the case law pertaining to the Corporations Act.
  2. 5.19 If a narrower meaning of oppression were adopted, practical difficulties would arise for the reasons suggested in the submission of the Federal Court.
  3. 5.20 The Commission notes that section 232(d) of the Corporations Actcurrently adopts the concept of the interests of the members of the company. A number of cases have suggested that the meaning of ‘interests’ should not necessarily be confined to the commercial interest of the members.15 In the law of trusts, however, there is authority for the proposition that the duty to act in the best interests of the beneficiaries refers to their economic interests.16
  4. 5.21 In the Commission’s view, the meaning of ‘the interests of the beneficiaries’ under the proposed statutory remedy should not be confined to their economic or commercial interests. Since the amendments involve the interaction between trusts and companies, the Commission recommends a definition of ‘interests’ which reflects the current jurisprudence under the Corporations Act.

Scope of the oppression remedy

  1. 5.22 As discussed in Chapter 3, section 233 of the Corporations Act gives the court a wide discretion to make orders granting an oppression remedy. It also contains a non-exhaustive list of possible orders, by way of example.17
  2. 5.23 In the Commission’s consultation paper,18 the following questions were asked:

Should the orders available to the court be specified, or left to what the court ‘considers appropriate’ as in section 233 of the Corporations Act?

Section 233 of the Corporations Act provides a non-exhaustive list of examples of the types of order available. Should a similar list be included in any amendment to the Trustee Act?

The majority of submissions19 expressly endorsed the concept of a broad discretion for the court to make whatever order is appropriate in the circumstances. Two submissions20 also expressly endorsed the inclusion of a non-exhaustive list of possible orders, by way of example, as provided in section 233 of the Corporations Act. While not expressly dealing with the issue, two other submissions21 did not oppose a broad discretion, nor a list of examples.

  1. 5.24 One of the submissions, from Professor Elise Bant and Associate Professor Matthew Harding of the University of Melbourne Law School, questioned the utility and effect of such a broad discretion being given to the court, especially in respect of discretionary trusts:

It should not be assumed that just because the subject matter of such remedies will be trusts, courts should be given a wide-ranging and open-ended discretion in operating them. We would urge the Commission to give some thought to the extent to which legislative provisions might seek to guide and direct judicial application of any oppression remedies in the Trustee Act, so that these remedies can be administered in a predictable and transparent fashion. Here, possible models of appropriate legislation might be developed along the lines of the guiding criteria used to assist courts in determining unconscionable conduct under s 21 of the Australian Consumer Law.22

  1. 5.25 The Commission has considered this submission and, bearing in mind that some compromise between predictability and flexibility is unavoidable, the Commission has opted for a more flexible approach. The legislative policy behind an oppression remedy is, in the Commission’s view, broader than the concept of ‘unconscionability’. This accords with views expressed in submissions, particularly that from the Federal Court of Australia.23
  2. 5.26 As a result, the Commission recommends that the court be given a broad discretion, in similar terms to those used in section 233 of the Corporations Act, and that a non-exhaustive, exemplary list of possible orders be included in the new provisions in the Trustee Act.
  3. 5.27 In considering what should be included in this list of examples, the Commission has considered the relevant provisions in the Singapore Business Trusts Act,24 the Canada Business Corporations Act,25and the draft recommended provisions in the ALRC/CSAC report.26 All of these provisions appear at Appendix D.
  4. 5.28 The Commission notes that the precise wording of section 233 of the Corporations Act would have to be adapted to accommodate the law of trusts. These provisions would also require careful drafting to accommodate the recommendations contained in this report.

Proposed list of possible orders

  1. 5.29 In the Commission’s view, the non-exhaustive, exemplary list of possible orders could be in a similar form to the following list, which is based on section 233.

The Court can make any order under this section that it considers appropriate in relation to the trading trust, including an order:

  • that the trust be terminated;
  • that existing terms of the trading trust be modified in any manner;
  • regulating the conduct of the trading trust in the future;
  • for the purchase of, or payment for the renunciation of, the rights of a beneficiary under the trading trust by another beneficiary or other beneficiaries or by the trustee of the trading trust;
  • for the trustee of the trading trust to institute, prosecute, defend or discontinue specified proceedings;
  • authorising a person with rights under the trading trust to institute, prosecute, defend or discontinue specified proceedings in the name of or otherwise on behalf of the trustee;
  • removing and replacing the trustee or trustees of the trading trust;
  • restraining a person from engaging in specified conduct or from doing a specified act;
  • requiring a person to do a specified act.

If an order under this section modifies or replaces the terms of a trading trust or replaces the trustee or trustees of a trading trust, the trustee or trustees for the time being of the trading trust do not have the power to change the terms of the trading trust and the appointor (if any) of the trading trust does not have the power to remove or replace the trustee or trustees of the trading trust if that change or replacement would be inconsistent with the provisions of the order, unless the leave of the court is first obtained.

  1. 5.30 The Commission considers that given the nature of the problems confronting beneficiaries identified in Chapter 1, the most important powers that a court should possess are:
  • to terminate the trust
  • to modify the terms of the trust deed
  • to regulate the conduct of the trading trust
  • to order the purchase of, or payment for the renunciation of, a right under the trading trust.
  1. 5.31 The first and last of these powers are akin to the winding up and buyout orders available under the Corporations Act, respectively.
An order that the trust be terminated
  1. 5.32 The equitable principles governing termination and redemption are discussed in Chapter 4. It is clear that a court does not have any inherent or existing statutory power to terminate a trust. Nor is it clear that equitable doctrine can be invoked to terminate a trust.
  2. 5.33 Plainly, an express power to terminate the trust should be included in the non-exhaustive statutory list.
An order that the existing terms of the trust be modified
  1. 5.34 As outlined at [5.6]–[5.13] the Commission recommends that the court should be given a broad power to modify the trust deed, where this is necessary to remedy oppressive conduct. The terms of the trust deed should not be determinative or pre-emptive.
An order for the purchase of rights under the trading trust
  1. 5.35 The wording at [5.29] is generally appropriately adapted to the power to make a buyout order under section 233(1)(d) of the Corporations Act. In most circumstances, the meaning of rights under a trading trust will correspond to a beneficiary’s beneficial interest. A clear example is the interest of a beneficiary in a unit trust.
  2. 5.36 However, as demonstrated in Chapter 2, difficulties may arise in identifying the beneficial interest of a beneficiary in a discretionary trust. Moreover, a beneficiary of a discretionary trust will not usually possess an interest capable of purchase, but merely a right to have the trust administered. In such a case it may be appropriate for a court to order that a trustee or beneficiary pay a beneficiary, at fair value (as set out at 2.105), for their renunciation of any future claim from the trust.
  3. 5.37 In those rare cases where it is necessary to make such orders, it is the Commission’s view that the court should adopt a broader view of rights under the trading trust than the meaning of beneficial interest.
  4. 5.38 There are certain circumstances, especially in the case of discretionary trusts, where it would be appropriate for the court to have regard to, but not be bound by, the terms of the trust deed. The Commission thus recommends that a provision to similar effect accompany the amendment.
Orders regulating the conduct of the trading trust
  1. 5.39 The Commission notes that in certain circumstances a beneficiary may require additional remedies in order to fully relieve the oppressive conduct. This may arise where the trading trust is part of a broader structure which encompasses both trusts and companies.
  2. 5.40 In order to provide an effective remedy, a court may have to make orders that affect the internal management of the company, as the trustee of a trading trust will typically be a corporate trustee. An instance, according to the Commercial Bar Association of Victoria, is where the remedy necessarily involves the complete severance of the business relationship between the parties.27
  3. 5.41 Under section 233 of the Corporations Act, a shareholder can seek remedies including an order ‘regulating the company’s affairs.’28 Similarly, under the proposed amendment, a beneficiary may seek an order regulating the conduct of the corporate trustee. A difficulty with orders of this kind is that they relate to the affairs of corporations and the conduct of shareholders and directors. An attempt to include such a provision in the Trustee Act may create jurisdictional issues involving the interaction of state and Commonwealth laws. As will be seen below, it is possible for a legislative displacement provision to be included, to counteract this problem.
  4. 5.42 The Commission notes that section 233(3) of the Corporations Act contains the following provision:

If an order made under this section repeals or modifies a company’s constitution, or requires the company to adopt a constitution, the company does not have the power under section 136 to change or repeal the constitution if that change or repeal would be inconsistent with the provisions of the order, unless:

(a) the order states that the company does have the power to make such a change or repeal; or

(b) the company first obtains the leave of the Court.

  1. 5.43 The proposed amendment may be adapted to section 233(3) by addressing the power of the trustee to modify the terms of the trust deed and the capacity of an appointor to change the trusteeship.

Recommendation

2 The Supreme Court of Victoria should be empowered to make any order that 

it considers appropriate in relation to the trading trust, in terms similar to section 233 of the Corporations Act 2001 (Cth). In particular, the new provisions in the Trustee Act 1958 (Vic) should:

(a) include a non-exhaustive list of the types of orders that may be made, including a power for the court to amend the trust deed

(b) require the court to have regard to the terms of the trust deed.

 

Who should be able to apply for an order?

  1. 5.44 As outlined in Chapter 3, the standing provisions of the Corporations Act are set out in section 234 of that Act, in fairly broad terms. However, it is clear from the cases examined in Chapter 3 that the current law, while uncertain, clearly does not extend to a beneficiary who is not also a shareholder in the corporate trustee.
  2. 5.45 The Commission’s view is that the availability of the oppression remedy for beneficiaries should be at least as broad and flexible as the current Corporations Act provisions relating to shareholders. This means that there should be no requirement for a beneficiary to be a shareholder or member.
  3. 5.46 In the Australian Law Reform Commission/Companies and Securities Advisory Committee report, the recommended oppression remedy could be sought by ‘an investor in a collective investment scheme or by the Commission.’29 It should be remembered that the subject of that report included, but was broader than, trading trusts. Thus an ‘investor’ could have been a beneficiary or unitholder of a trading trust, but might not necessarily have been so.
  4. 5.47 In the Singapore Business Trusts Act, the remedy may be sought by ‘any unitholder or any holder of a debenture of a registered business trust’.30
  5. 5.48 In the Canada Business Corporations Act, ‘a “complainant” may apply to a court for an order’. Section 238 of that Act provides:

‘complainant’ means:

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or any of its affiliates

(c) the Director 31; or

(d) any other person who, in the discretion of a court, is a proper person to make an application under this Part.

  1. 5.49 The Commission’s view is that an inclusive approach should be adopted, meaning that there should be no requirement for an applicant for the oppression remedy to be a shareholder or member of the corporate trustee.

Recommendation

3 The following people should be able to apply to the Supreme Court of Victoria for an oppression remedy:

 

(a) a beneficiary of a trading trust (the beneficiary does not have to also be a shareholder in the corporate trustee)

(b) a person to whom a beneficial interest in a trading trust has been transmitted by operation of law

(c) a person to whom the court grants leave.

 

 

  1. 5.50 The Commission has included the third listed category in the recommendation above,
    ‘[a] person to whom the court grants leave’, to reflect section 234(e) of the Corporations Act which provides that a person will have standing when:

ASIC thinks [it] appropriate having regard to investigations it is conducting or has conducted into:

(i) the company’s affairs; or

(ii) matters connected with the company’s affairs.32

  1. 5.51 The leave requirement has been included to preserve the breadth and flexibility of the oppression remedy. However, the Commission envisages that leave will be granted only where a court considers that the person is sufficiently connected to the trust’s affairs; or matters connected with the trust’s affairs. Moreover, the Commission proposes that such a person would have to demonstrate a compelling interest, not otherwise protected by law.

The court’s existing powers

  1. 5.52 Participants in the roundtable raised the possibility of existing law offering some avenues of relief to beneficiaries subject to oppressive conduct.
  2. 5.53 While the Commission does not take the view that these existing avenues of relief provide a suitable alternative to the recommended statutory remedy, it is important that any legislative amendment not have the unintended or unforeseen consequence of limiting any of the court’s current palliative powers.
  3. 5.54 For this reason, a provision should be expressly included in the amendment provisions, making it clear that the court’s new powers with respect to oppression do not limit the existing powers of the court.

Recommendation

4 The amendment to the Trustee Act 1958 (Vic) should expressly state that it does not limit any of the existing powers of the Supreme Court of Victoria.

 

Exit remedy

  1. 5.55 An important theme of this report is the inadequacy of remedies available to beneficiaries under trust law and the Vigliaroni/Drapac line of authority. As explained in Chapter 4, beyond termination pursuant to the trust deed, there are very few mechanisms available to a beneficiary which enable the extrication of their interest from a trading trust. A key recommendation of this report is for orders equivalent to winding up or buyout to be part of a broad oppression remedy for trading trusts.
  2. 5.56 However, at the roundtable several participants noted that there are many cases when a winding-up or buyout order may be justified in circumstances falling short of oppression. For instance section 461(1)(k) of the Corporations Act allows the court to make a winding-up order when it is just and equitable to do so. There is authority for the proposition that a court can make a winding-up order under this ground when deadlock between the members constitutes an irreconcilable breakdown in the business relationship.33 Although oppression may encompass situations of deadlock, this is not necessarily so.34 This point was also made in several submissions.35
  3. 5.57 Although the relationship between a situation of deadlock and the oppression remedy is a close one, the Commission notes that these recommendations are beyond the scope of the terms of reference.

 

Constitutional/jurisdictional issues

  1. 5.58 Amending the Trustee Act to provide for oppression remedies for beneficiaries, as recommended by the Commission, will raise issues concerning the interaction between state and Commonwealth laws.
  2. 5.59 The constitutional basis for the Corporations Act is found both in the legislative powers of the Commonwealth in section 51 of the Constitution (especially section 51(xx), the power to make laws with respect to trading or financial corporations) and in the referral of powers by the states (see the Corporations Act, section 3). In particular, the states, through Acts such as the Corporations (Commonwealth Powers) Act 2001 (Vic), referred to the Commonwealth the power to make laws with respect to the matters relating to the original text of the Corporations Act.36
  3. 5.60 The current referral reflects the position that the Commonwealth’s legislative power does not cover the whole scope of corporate entities (section 51(xx) being relevantly directed to ‘trading or financial corporations’), that the power in section 51(xx) was extended only to the regulation of trading and financial corporations once ‘formed’37 and that the High Court had found that jurisdiction under state corporations laws (under the previous regime) could not be vested in the Federal Court.38
  4. 5.61 In this context, the Corporations Act, while Commonwealth law, contains provisions in Part 1.1A which provide, in short, that:39
  • that Act is intended to have concurrent operation with state laws, including ones which impose additional liabilities on companies or directors40
  • the states can declare a matter to be an ‘excluded matter’ so that, simply put and subject to the Commonwealth making a regulation to the contrary, part or all of the Corporations Act does not apply with respect to that matter;41 and
  • the states can declare a provision of a state law to be a ‘corporations legislation displacement provision’ so that, in short, the corporations legislation does not operate to the extent that there would otherwise be an inconsistency between the corporations legislation and the provision of the state law.42
  1. 5.62 Part 1.1A of the Corporations Act is designed against the operation of section 109 of the Constitution, which provides that, where a state law is inconsistent with a Commonwealth law, the latter shall prevail and the former shall be invalid to the extent of the inconsistency.43

Is a corporation legislation displacement provision necessary?

  1. 5.63 In the Commission’s view, consideration needs to be given to the operation of Part 1.1A of the Corporations Act in relation to beneficiaries who are shareholders in the relevant corporate trustee.
  2. 5.64 As discussed in Chapter 3, there is a clear division in the view of Australian courts regarding the question of whether the remedy in Part 2F.1 of the Corporations Act already applies to such beneficiaries. If it does and the Trustee Act is amended to provide similar remedies, a question may arise as to whether there would be inconsistency between Part 2F.1 and the new provisions which would render them invalid by virtue of section 109 of the Constitution:
  • While section 5E(1) of the Corporations Act, which provides that the corporations legislation is not intended to exclude or limit the concurrent operation of any law of a state, is relevant to determining a question of inconsistency, it is not necessarily determinative; in particular, it will not avoid invalidity arising out of a ‘direct’ inconsistency (or textual collision) between Commonwealth and state laws.44
  • In some cases, a Commonwealth law conferring jurisdiction on a court will be construed as intending to provide an exclusive remedy with respect to a particular matter, rendering a state law conferring jurisdiction with respect to that matter invalid.
  • In other cases, a Commonwealth law conferring jurisdiction on a court will be construed as intended to exist against the background of state laws, including state laws conferring like jurisdiction on the courts. In such cases, inconsistency will not arise unless a court actually exercises jurisdiction under the Commonwealth law, in which case, the determination in the exercise of the jurisdiction under the Commonwealth law will prevail (and any exercise of state jurisdiction with respect to the same matter will be invalid).45
  1. 5.65 If the second scenario considered above arose, the state could declare the relevant provisions of the Trustee Act to be corporations legislation displacement provisions under section 5G of the Corporations Act. As discussed in paragraph [5.41] above, this would avoid any issue of inconsistency arising (as, to the extent that there might otherwise be inconsistency, the Corporations Act would not apply).
  2. 5.66 For these reasons, the Commission recommends that the amendments to the Trustee Act should include a corporation legislation displacement provision.

Recommendation

5 The amendment to the Trustee Act 1958 (Vic) should include a corporation legislation displacement provision.

 

Other matters

The need for uniformity

  1. 5.67 A number of the submissions received by the Commission stressed the desirability of uniform, or at least harmonised laws, across Australia.
  2. 5.68 Cornwall Stodart and Ari Bergman made the following submission:

We would prefer that comprehensive oppression remedies be incorporated into the national legislation (constitutional restrictions permitting). It is submitted that, in the context of oppression, the CA [Corporations Act], rather than the Trustee Acts, is the primary legislative instrument by which unitholders should have access to relief…

The federal legislature have historically been reluctant to regulate trusts under the CA and there is no certainty that it will be persuaded to change that attitude. Failing action by the Commonwealth, consideration should be given to amendments to the Trustee Acts to include relief against oppression as an alternative. Amendments to the Trustee Act 1958 (Vic) would afford protection in those oppression cases where there is no corporate trustee.46

  1. 5.69 The Commercial Bar Association of Victoria submitted:

The ideal situation would be for the reform to apply uniformly throughout Australia. On balance, CommBar consider this issue to be sufficiently important to support amending the Trustee Act 1958 (Vic) unilaterally to provide oppression remedies for minority beneficiaries…However, this should be complemented by efforts to promote uniformity in state Trustee Acts via SCLJ (the successor of SCAG) or other appropriate body.47

  1. 5.70 The Federal Court of Australia, in its submission, stated that:

It would be desirable, if not essential, for there to be harmonious Commonwealth and State laws providing these remedies for trading trusts and unit trusts.48

  1. 5.71 The Commission agrees that it is highly desirable that, to the maximum extent possible, uniform or harmonised laws apply to trading trusts across Australia. For this reason, if the Commission’s recommendations are accepted and implemented, the Commission encourages the Victorian Government to take appropriate steps to achieve this. However, the Commission considers that enactment of Victorian legislation should not wait upon the achievement of full harmonisation.

Tax

  1. 5.72 The Commercial Bar Association of Victoria’s submission, made the following observation:

…The reality is that participants enter in 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 in the future.

This raises policy questions, including:

How far should the law go to save people from the consequences of their desire to minimise tax?49

  1. 5.73 While the apparent use of trading trusts ‘as a device for evading, avoiding and minimising direct and indirect taxes’50 is a policy issue to be considered when considering the desirability of extending oppression remedies to the beneficiaries of such trusts, in the Commission’s view, it should not be determinative.
  2. 5.74 As D’Angelo pointed out:

Absent empirical evidence, it is difficult to estimate the relative weight of taxation benefits over other factors in the expansion of commercial usage of the trust.51

  1. 5.75 D’Angelo also stated that:

Australian tax laws expressly contemplate trusts and as a matter of policy deliberately extend certain benefits to participants in them if they are structured a certain way and conform to ongoing requirements; in this context, the trust is not used as an instrument of tax evasion or avoidance.52

And elsewhere:

…those benefits could be swept away with the stroke of a legislative pen.53

  1. 5.76 The policy basis for the taxation benefits offered to beneficiaries of trading trusts is not the subject of this reference. In the Commission’s view, if such benefits are seen to be undesirable or unjustified, the solution lies in reform of the taxation laws at a Commonwealth level, rather than denying remedies to beneficiaries subject to oppressive or unfair conduct.

Education

  1. 5.77 In a related point, the Commercial Bar Association of Victoria posed the following question in its submission to the Commission:

Should the law reform dollar instead be spent on educating advisers as to the ‘back end’ consequences of trading trust structures and the desirability of entering into a well-drafted unitholders’ deed, rather than on tampering with trusts law?

Although this submission advocates the education effort referred to in the previous paragraph being undertaken, the relational nature of the business relationship and the difficulty in anticipating all possible future events would suggest that this education effort should also be complemented by law reform.54

  1. 5.78 The Commission endorses this submission. Law reform to extend oppression remedies to beneficiaries and efforts to educate accountants, lawyers and other professional advisors as to the potential consequences of trading trust structures should not be mutually exclusive. Based on submissions received, other consultations and its own research, the Commission recommends law reform. It also encourages greater efforts from within the professions to educate professional advisers.

Footnotes

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