THE INTERSECTION OF COMPANIES AND TRUSTS.

• Date: 01 April 2020
• Author: Allsop, James

CONTENTS I Introduction II Equity, Statute and Company Law A Principles of Equity B Statute, the Common Law and Equity III The Cases A Octavo Investments Pty Ltd v Knight B Re Byrne Australia Pty Ltd and the Companies Act C Re Enhill Pty Ltd D Re Suco Gold Pty Ltd (in liq) IV Developments in the Intervening Years V Clarification from the High Court VI Conclusion I INTRODUCTION

It is a great honour to be asked to give the Harold Ford Memorial Lecture. Unfortunately, and unlike many here this evening, I did not have the pleasure of knowing Professor Ford; however, fortunately, and like many here this evening, I did have the advantage of studying company law primarily by reference to the textbook that he wrote. It was penetrating, concise, and deeply thoughtful, being the traits that marked him as a scholar and teacher.

The intersection of companies and trusts is statute and equity. The focus of what I wish to discuss tonight was the subject of an influential (and still well-read) article which Professor Ford wrote in 1981. The article was entitled 'Trading Trusts and Creditors' Rights'. (1) The article appeared to have been spurred by the then-recent High Court decision in Octavo Investments Pty Ltd v Knight ('Octavo') (2) and the growing development, at least from the 1960s for fiscal reasons, (3) of the use of the so-called 'trading trust' as a vehicle for the conduct of business, in apparent preference to the limited liability company in its own right and in its own interests. This union of trust and company and the interaction of statutory and equitable rules led Professor Ford to refer to the hybrid as a 'commercial monstrosity'. (4)

More recent growth of superannuation savings, managed superannuation funds, and the statutory and regulatory frameworks of superannuation trusts, as well as managed investments schemes, (5) mandate close attention to equitable principle and to relevant statutes, and to the interrelationship between the two.

For 38 years, with an intervening Australian Law Reform Commission ('ALRC') report, (6) the 'commercial monstrosity' has given life to a body of jurisprudence requiring the careful conceptualisation and expression of legal, statutory and equitable concepts. Judgments have been written by eminent commercial and equity judges. The High Court has, on a number of occasions, contributed to the development of the jurisprudence. (7) Recently, in Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth ('Re Amerind'), (8) in an appeal from a five-member bench of the Victorian Court of Appeal, (9) in three separate but broadly conforming judgments, the High Court has settled, hopefully once and for all, the major disputes which divided Supreme Courts in the 1980s and 1990s--which appeared to be settled by the end of the first decade of the 21st century, and which then erupted once again in the second decade of this century.

II EQUITY, STATUTE AND COMPANY LAW

Equity, equitable principle and statute lie at the heart of company law. The genius of the 19th century development of the limited liability company as an institution that mixed contract, fiduciary loyalty and capitalist risk-taking has always called for a command of legal skills that encompass the common law, equity and statute.

A Principles of Equity

Equity and equitable principle have a justification and coherence that is not merely historical and rooted in the organisation of English courts of centuries past. A conception of equity is an inhering part of any civilised system of law and justice. It involves the adaption of the general rule to the circumstances of the case informed by equity's principles. (10) As a body of law directed to, and concerned with, the conscience of parties--in particular with fraud, accident and mistake--equity maintained, through particular application to the relationships of the parties before it, the requirements of justice, fairness and conscionable conduct.

The distinctiveness of equity is a reflection of law's inherent societal and human character, affected by the deep and complex relationships of rule, principle and values. Equity is the part of the legal fabric that ameliorates hardship of rule, that accommodates structure to justice, and that provides the flexibility of rule and principle to the sometimes competing demands of the occasion, certainty and changing values. As a matter of history in our legal system, equity had a separate existence in a separate body of courts, and so, clear separate institutional coherence. That should be recognised still, not to maintain outdated organisational structures, but to recognise the true sources of different parts of our law, recognition of which assists in coherent legal development.

For instance, I venture to suggest that many of the commercial problems of corporate and financial regulation exposed in the recent Royal Commission (11) would be made more ruthlessly manageable by a full understanding and a daily application of the fiduciary principle, rather than by ever more detailed regulation that has as its (false) working assumption the ability to define exhaustively good faith, fiduciary responsibility, and behaviour in good commercial conscience.

Equity and its doctrines are built on maxims and principles. Its informing norms are timeless. They arise from a view as to what ought be the case: equity regards as done, that which ought to be done; (12) and fairness and equality: equality is equity. (13) Notions of fairness and justice and a demand on the person before the court to act, or to have acted, in good conscience, are reflected in equity's concern with fraud, accident and mistake, (14) and with the strength of the demands for faithfulness and confidence in the fiduciary relationship. Its doctrines reflect the interplay of personal obligation, trust and confidence, and the translation of known circumstances and relationships that are subject to doctrine and personal obligation into rights that are expressed and recognised as proprietary in character. Thus, the interest of the cestui que trust was assignable by the early 16th century when an assignment of a chose in action was illegal on the ground of maintenance. (15)

Considerations of the nature of equity affect the technique of its application, as expressed by two masters of equity, Dixon CJ and Kitto J, in Jenyns v Public Curator (Qld), (16) which emphasised the precise identification of all relevant facts being every connected circumstance relevant to the justice of the case. (17)

The passage should not be misunderstood. Equity is not to be viewed as based on personal choice, or mere intuitive human or personal responses. It is a body of doctrine and rules with thematic coherence, directed often at subjects that are abstracted and intricate; but even then, equity and any intricacies or subtleties in doctrine will be informed by the practical realities of the problem at hand, by underlying principles and their purposes, and by the values that underpin them. This relationship of rule, principle and values, especially fairness and justice in the notion of conscience, is no better expressed than by another master of equity, Deane J, in Muschinski v Dodds, (18) and his Honour's demand for the application of principle and doctrine, not the 'formless void of individual moral opinion'. (19) Yet his Honour recognised that notions of fairness and justice 'remain relevant to the traditional equitable notion of unconscionable conduct which persists as an operative component of some fundamental rules or principles of modern equity'. (20)

The subtleties in the formation and application of equitable doctrine often arise from the nature of the process of characterisation, which was discussed by Dixon and Evatt JJ in Attorney-General (NSW) v Perpetual Trustee Co Ltd (21) in the context of ascertaining a general charitable intention. (22) This process of characterisation (23) is related to, but different from, the creation of taxonomical categories. Taxonomy and organisational structure of categories have their important place, but there is an ever-present danger that taxonomy and categories will direct or drive conclusions through mechanical application, rather than merely assisting to organise principles to reach conclusions by reference to principle. (24) Sometimes this is done in the name of simplicity or clarity, or certainty. Further, the sometimes elusive distinction between defined rule and operative principle, and the related distinction between construction and characterisation, can be important in analysis and articulation of equitable concepts and doctrine. One can see this in the conceptualisation of equitable rights and the availability of equitable remedies, and the relationship between the two in the coming into existence or recognition of equitable proprietary interests, as distinct from lesser forms of equities. (25) The proper characterisation of rights of a residuary legatee in an unadministered estate in Livingston v Commissioner of Stamp Duties (Qld) ('Livingston'), (26) of a beneficiary under a discretionary trust in Gartside v Inland Revenue Commissioners, (27) of a mortgagor seeking to set aside a fraudulent sale by the mortgagee in Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) ('Latec Investments'), (28) of a company's continuing (beneficial) ownership of company assets in a winding-up in Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (29) and Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in liq), (30) and of the purchaser's or option holder's interest after contract, (31) are all examples of the analysis and characterisation of equitable conceptions. The danger lies in moving from the process of characterisation from the facts of a concrete legal problem to creating a defined category therefrom, with abstracted defined elements, which category will drive further analysis by mechanical general application...