Trading Trusts—Oppression Remedies: Report (html)

1. Introduction

This reference

1.1 On 24 October 2013, the Attorney-General, the Hon. Robert Clark, MP, asked the Victorian Law Reform Commission, under section 5(1)(a) of the Victorian Law Reform Commission Act 2000, to review the desirability of introducing similar remedies to those provided to shareholders of companies under sections 232 to 234 of the Corporations Act 2001 (Cth) (Corporations Act) to protect the rights of beneficiaries of trading trusts who may be subject to oppressive conduct by a trustee. The terms of reference are on page vi. The Commission was asked to report by 3 February 2015.

Reviews and legislative responses in other jurisdictions

1.2 This reference is the first public review of trading trusts and oppression remedies in Victoria and, as far as the Commission is able to ascertain, the first in any common law jurisdiction. In 1993, the Australian Law Reform Commission (ALRC), in conjunction with the Companies and Securities Advisory Committee, examined collective investment schemes.[1] The ALRC recommended that an oppression remedy be available for investors in such schemes, which could include trading trusts.[2]

1.3 Earlier reviews of aspects of trusts law by other law reform bodies raised related issues that the Commission has been able to consider. These bodies include:

• the Scottish Law Commission[3]

• the British Columbia Law Institute[4]

• the Law Reform Commission of Saskatchewan.[5]

1.4 Singapore is the only jurisdiction identified to have legislated to provide a statutory oppression remedy in the specific context of trading trusts.[6] Where a ‘business trust’ is registered under the Business Trusts Act (Singapore, cap 30, 2008 rev ed), an oppression remedy is available to any unitholder or debenture holder. However, registration is voluntary.[7]

1.5 In Canada, federal and provincial statutes provide very broad oppression remedies against Canadian corporations to address a virtually unlimited array of unfair or oppressive conduct. Oppression can be claimed by virtually any ‘stakeholder’ for corporate actions that infringe on the stakeholder’s legitimate expectations, whether or not the stakeholder is a shareholder of the corporation in question. The oppression remedy is available to a wide range of corporate stakeholders, including secured and unsecured creditors, debtors, directors and officers, as well as shareholders.[8]

1.6 The Canadian and Singaporean provisions are set out at Appendix D.

The Commission’s process

1.7 The Commission’s review was led by the Hon. Philip Cummins AM and a Division which he chaired. The other Division members were Dr Ian Hardingham QC, Eamonn Moran PSM QC and Alison O’Brien.

1.8 On 13 June 2014, the Commission published a consultation paper that described the current law and identified possible reform options.[9] The consultation paper sought written submissions on possible reforms.

1.9 Submissions were invited by 21 July 2014, though the Commission accepted contributions after that date. Seven submissions were received and can be viewed on the Commission’s website.[10] They are listed at Appendix A.

1.10 The Commission also held a roundtable conference on 11 June 2014, which considered the desirability of legislative reform. Participants discussed the need for an oppression remedy for beneficiaries, the current law relating to corporations and trusts, and options for reform.

1.11 The roundtable was attended by academics and legal practitioners with particular expertise and experience in this area of law, and representatives of the Victorian Bar and the Financial Services Council. The list of participants is at Appendix C.

The current law

Oppression remedy in the Corporations Act

1.12 Section 232 of the Corporations Act provides that the court may make an order where the conduct of a company’s affairs or a company’s actual act, omission or resolution is contrary to the members’ interests, oppressive or unfairly prejudicial or discriminatory against a member or members ’whether in that capacity or any other capacity’.

1.13 Where these grounds are satisfied, section 233 provides that the court can make ‘any order … that it considers appropriate in relation to the company’, including an order ‘regulating the conduct of the company’s affairs in the future’, or that the company be wound up, or its constitution be modified or repealed.

1.14 Section 234 sets out who has standing to bring an action. The following types of individuals can apply for relief in relation to a company:

• a member of the company, even if the application relates to an act or omission that is against:

– the member in a capacity other than as a member; or

– another member in their capacity as a member;

• a person who has been removed from the register of members because of a selective reduction of capital;

• a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member;

• a person to whom a share in the company has been transmitted by will or by operation of law; or

• a person whom ASIC thinks appropriate having regard to investigations it is conducting or has conducted into:

– the company’s affairs; or

– matters connected with the company’s affairs.[11]

1.15 As discussed more fully in Chapter 3, it is unclear whether the existing oppression remedy in the Corporations Act already gives the court power to grant relief in the context of trading trusts. One line of authority has held that beneficiaries are limited to the conventional, and largely ineffective, forms of equitable relief under trust law.[12] However, an alternate line of decisions has held that the court’s power under section 232 of the Corporations Act is not limited to an action against the company and extends more broadly to the affairs of a company, including trading trusts of which the company is the trustee.[13]

1.16 The latter has relied upon a broader interpretation of section 53 of the Corporations Act to provide relief to beneficiaries,[14] based on the proposition that to do otherwise would be unfair.[15]

1.17 Whichever line of authority is followed in a particular case, it is clear that the oppression remedy in the Corporations Act will not be available to a beneficiary who is not also a shareholder in the corporate trustee. This means that reliance on the existing Corporations Act provisions would exclude large numbers of beneficiaries potentially subject to oppressive conduct.

Trusts and trading trusts

1.18 In Victoria, trusts are regulated by a combination of the Trustee Act 1958 (Vic) (Trustee Act) and judge-made law. For this reason, reform of the law will require amendment of the Trustee Act.

1.19 This reference deals with ‘trading trusts’, which are a form of commercial trust. The particular features of this type of trust are discussed more fully in Chapter 2.

1.20 The Commission has sought to achieve a balance between inclusivity, so as to examine the desirability of affording a remedy to any beneficiary that could be subject to oppressive conduct, and pragmatism, recognising that some forms of trading trusts are already subject to significant regulation and thus may not require reform by way of an oppression remedy.

1.21 The Commission has adopted a functional 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’.[16]

1.22 Applying this approach, the Commission determined that, notwithstanding this broad definition of ‘trading trust’, managed investment schemes,[17] charitable trusts and regulated and statutory superannuation trusts did not require additional remedies. These types of trusts are already subject to significant regulation under Commonwealth and Victorian law,[18] which would prevent, minimise or provide protection against oppressive conduct. Moreover, applying an oppression remedy via the Trustee Act to these types of trusts could create significant jurisdictional issues.

The need for reform

1.23 In the Commission’s view, the law requires reform for three reasons: clarity, simplicity and fairness. These themes were raised frequently during consultations and submissions.

Clarity, simplicity and fairness

1.24 The case for reform was strongly made by the Commercial Bar Association of Victoria in its submission, which stated that reform is needed not only due to conflicting and uncertain case law, but due to the fact that even on the more liberal interpretation of the Corporations Act, the law will not extend to all cases where relief from oppression may be required.[19]

1.25 In some cases, the plaintiff will not be a shareholder, which effectively leaves such persons without any effective remedy at all, unless an alternative statutory remedy is provided.

1.26 In its consultation paper, the Commission posed the question whether the lack of a clear oppression remedy in either the Corporations Act or the Trustee Act for minority beneficiaries of a trading trust caused substantive injustice or hardship.[20] Several submissions addressed this issue.

1.27 Peter Agardy of the Victorian Bar argued that the number of cases brought to court for decision does not reflect the size of the problem: not all cases get to court, and most of those are settled and not reported. He also pointed out that many of the entities that encounter problems are family businesses and other small-to-medium enterprises that cannot afford the costs and distress of litigation.[21]

1.28 The Commercial Bar Association of Victoria submitted that there is anecdotal evidence of hardships resulting from the present state of the law in the form of:

(a) extensive costs that are spent investigating possible ways of framing a claim when there is no clear remedial pathway; and

(b) cases where oppressed unitholders have refrained from taking legal action, alternatively have settled on unfavourable terms, rather than fight a protracted court battle given the uncertain legal situation.[22]

1.29 In his submission, Professor Matthew Conaglen argued for a functional approach to the problems caused by oppression or unfairness in the conduct of businesses, regardless of their formal structure:

… it seems to me that this makes the case for an oppression remedy strongly. Where the business is organised as a corporation, it has been thought fit to provide the courts with power to correct oppressive conduct (in ss 232-234 of the Corporations Act). Functionally speaking, the equity owners of a business should be in no worse position for having chosen to arrange their business affairs through a different legal structure, be it a trust or some other legal arrangement. If, as a matter of legislative policy, it is important for the courts to be able to rectify oppression between equity owners, it is arguable from a functional perspective that it should not matter which legal structure has been adopted.[23]

1.30 In their submission, Cornwall Stodart and Ari Bergman put the view that the inability of unitholders or beneficiaries who have been oppressed to successfully seek a remedy reflects adversely on the law and the judicial process. They called for the legislature to take action to provide ‘lucidity, certainty and trust in the law’.[24]

1.31 The Federal Court of Australia also called for the law to be clarified:

The remedies provided by the Trustee Act 1958 (Vic) do not extend to, or envisage, oppression remedies of the kind provided in the Corporations Act. That omission should be rectified. The manner in which trading trusts and unit trusts are now part of complicated commercial arrangements necessitates clear identification of the availability of these remedies for all participants in trading trusts and unit trusts.[25]

1.32 Views expressed in consultations and submissions suggest that beneficiaries of trading trusts are confronted with substantial practical problems in the absence of a statutory oppression remedy.

1.33 In some situations, this can lead to manifest unfairness, given the fact that in contemporary Australia, trading trusts are often used as an alternative and in a very similar way to companies as a way to structure businesses. While trusts are used in other jurisdictions for commercial purposes, it has been suggested that the treatment of trading trusts in Australia is a unique phenomenon.[26]

1.34 A contrary view put during consultations was that the presence of hardship does not necessarily mean that legislative reform is justified. Arguably, the problem of hardship is only evident since trading trusts and companies are treated differently. Participants in consultations suggested that there might be policy reasons for the difference, which outweigh the potential hardship of denying an oppression remedy to beneficiaries of trading trusts.[27]

1.35 The Commission considers that this argument is insufficient for two reasons:

• Existing remedies, including equitable doctrines and relief under corporations or trusts legislation for beneficiaries of trading trusts facing oppression are inadequate and uncertain.

• Adopting a functional approach, trading trusts and corporations should be treated in a similar fashion, as regards the availability of oppression remedies.

This will be discussed in more detail in Chapters 3 and 4.

Recommended reform

1.36 The central recommendation of the Commission in this report is that the Trustee Act should provide a remedy for beneficiaries of trading trusts subject to oppressive conduct.

1.37 Oppressed beneficiaries of trading trusts should be able to apply to the court[28] for a remedy. In the Commission’s view, this should be the case, notwithstanding anything contained in the trust deed.

1.38 Chapter 5 contains a more detailed discussion of the form and content of the recommended reforms.

Structure of this report

1.39 Chapter 2 examines the scope of the remedy and whether and how ‘trading trust’ should be defined in the recommended new provisions, by looking at the various forms of trusts.

1.40 In Chapter 3, the operation of the existing oppression remedy in the Corporations Act is discussed in detail, including the desirability of extending similar protections to beneficiaries.

1.41 Chapter 4 considers the existing equitable and statutory remedies in trusts law, and why they do not provide an adequate alternative to the Commission’s recommended reforms.

1.42 Chapter 5 reiterates the need for legislative reform in Victoria, including the problems with the current law and options for reform. It includes the Commission’s specific recommendations for amendments to the Trustee Act to provide a remedy to beneficiaries subject to oppressive conduct.

1.43 Chapter 6 examines the potential effects of the recommended reforms on the interests of third parties. It also includes a discussion of how these effects can best be mitigated or managed.

1.44 Chapter 7 concludes the report.

  1. Law Reform Commission (Australia) and Companies and Securities Advisory Committee, Collective Investments: Other People’s Money, ALRC Report No 65 (1993). The Law Reform Commission is now known as the Australian Law Reform Commission (ALRC).

  2. Ibid 127.

  3. Scottish Law Commission. Report on Variation and Termination of Trusts, Report No 206 (2007); Scottish Law Commission, Report on Trust Law, Report No 239 (2014).

  4. British Columbia Law Institute, Report on the Variation and Termination of Trusts, Report No 25 (2003).

  5. Law Reform Commission of Saskatchewan, The Rule in Saunders v Vautier and the Variation of Trusts, Consultation Paper (1994); Law Reform Commission of Saskatchewan, Trustees Act: Proposals for Reform, Report (2002).

  6. Business Trusts Act (Singapore, cap 30, 2008 rev ed) s 41.

  7. Ibid s 4.

  8. Stephen J Maddox, The Oppression Remedy in Canada— How Americans Doing Business with Canadian Companies May Have a Right to Relief from Unfair Conduct (2009) Lexology <>.

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

  10. Victorian Law Reform Commission, Trading Trusts—Oppression Remedies (15 August 2014) <>.

  11. R P Austin and I M Ramsay, Ford’s Principles of Corporations Law (LexisNexis Butterworths, 15th ed, 2013) 714 [10.440], citing s 234 of the Corporations Act.

  12. Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Re Polyresins Pty Ltd (1998) 28 ACSR 671; McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244; Trust Company Ltd v Noosa Venture 1 Pty Ltd (2010) 80 ACSR 485.

  13. Vigliaroni & Ors v CPS Investment Holdings Pty Ltd (2009) 74 ACSR 282; Wain v Drapac [2012] VSC 156 (26 April 2012); Arhanghelschi v Richard Milne Ussher & Ors (2013) 94 ACSR 86.

  14. Ibid.

  15. Ari Bergman, Should statutory oppression remedies apply to unit trusts? A comparison of unitholder and shareholder rights (SJD Thesis, Monash University, forthcoming) 194.

  16. H A J Ford and I J Hardingham, ‘Trading Trusts: Rights and Liabilities of Beneficiaries’ in P D Finn (ed), Equity and Commercial Relationships (Lawbook Co, 1987) 48.

  17. As defined in s 9, Corporations Act 2001 (Cth).

  18. For managed investment schemes, Chapter 5C of the Corporations Act 2001 (Cth); for charitable trusts, Charities Act 1978 (Vic); and for superannuation trusts, the Superannuation Industry (Supervision) Act 1993 (Cth).

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

  20. Victorian Law Reform Commission, Trading Trusts—Oppression Remedies, Consultation Paper No 21(2014) 54, 69 [Question 24].

  21. Submission 2 (Peter Agardy, Victorian Bar) 4.

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

  23. Submission 1 (Professor Matthew Conaglen, University of Sydney Law School) 2.

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

  25. Submission 4 (Federal Court of Australia) 1.

  26. Nuncio D’Angelo, Commercial Trusts (LexisNexis Butterworths, 2014) 72–3, citing David Ipp, ‘The Diligent Director’ (1997) 18(6) Company Lawyer 162, 167; Christopher McCall, ‘Trustees—Risks They Never Thought They Ran’ (1995) 6 Private Client Business 419, 422–3.

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

  28. Throughout this report, where the Commission refers to the power of the court under the proposed amendment, the Commission means the Supreme Court of Victoria. The reasons for this will be explained further in Chapter 5.

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