Oppression and unit trusts – Wain v Drapac

The Supreme Court of Victoria has recently affirmed that the Corporations Act oppression provisions can be used when a company in which the oppression has occurred is a trustee company.  This has significant consequences for business relationships conducted through a unit trust structure that have turned sour. 

Until the decision of Davies J in Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428, it was settled law that the oppression Corporations Act 2001 (Cth) (ss. 232 and 233) could not help a claimant suffering oppression in the affairs of a unit trust conducted by a trustee company.

But Davies J declined to follow the earlier decisions of the New South Wales Supreme Court including the leading decision of Young J (as he then was) in Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606.

s. 232 provides that:

232     The Court may make an order under section 233 if:

(a)  the conduct of a company’s affairs; or

is either:

(d)  contrary to the interests of the members as a whole; or

(e)  oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

Kizquari held that the oppression provisions conferred no power on a court to relieve against oppression in relation to the affairs of the trustee of a unit trust because such oppression could not diminish the value of shares in a trustee company, those shares being of nominal value only.

The different result in Vigliaroni resulted from Davies J’s observation that s. 232 was directed to the conduct of  ‘a company’s affairs’, and that the s. 53 definition of  a company’s ‘affairs’ encompassed a broad scope of matters including transactions and dealings as trustee, and matters concerned with beneficiaries’ rights under a trust of which the company was trustee.  Her Honour surmised that s. 53 was not brought to the attention of courts that had decided and followed Kizquari.  

Although Davies J’s decision was the subject of some criticism from Windeyer AJ (obiter, in Trust Company Limited v Noosa Venture 1 Pty Limited [2010] NSWSC 1334 at [105]) Vigliaroni has now been strongly endorsed by Ferguson J in the Wain v Drapac [2012] VSC 156.

At [283] Ferguson J quoted at length from Davies J’s detailed reasons for departing from the Kizquari line of authority, concluding that:

In my view, it is clear that the legislative intent was to include the power to grant relief provided that (in the words of Davies J) there is a “rational and discernible link between the remedy and the company in which the oppression has occurred.” In a complex corporate structure (such as the Drapac Group) there is such a link between the companies and the relevant trusts which together operate the business. In my opinion there is power to grant the relief sought and consideration needs now to be given to whether, as a matter of discretion, it should be given.

Ferguson J’s decision is the subject of an appeal on this question and others.  The Court of Appeal’s decision will be noted here when handed down.

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