Can a beneficial interest in a unit trust give rise to a proprietary interest?
In the context of a property co-ownership dispute, the Victorian Civil and Administrative Tribunal rejected a claim that beneficiaries in a unit trust, which trust held land equally as between one pair of beneficiaries and another, themselves held an ‘interest in land’ for the purposes of standing to seek an order forcing its sale.
The facts
The case of Bedford v Mikelsons involved parties — two applicants and two respondents — who were in pairs 50 percent owners each of the units in a unit trust.[1] The sole asset of the trust was a block of land on which two houses — one occupied by the applicants and the other by the respondents — were situated.
The applicants sought to realise their beneficial interest in the land, and applied to the Tribunal for sale of the land and for the division of the net proceeds in equal shares. The applicants claimed that their ownership of the trust units gave them an equitable interest in the underlying property of the trust — here, the land — such that they were co-owners with the respondents of property for the purposes of bringing a claim under part IV of the Property Law Act 1958 (Vic) (PLA).
The respondents opposed such course, arguing among other things that the Tribunal lacked jurisdiction to the hear the matter as a co-owned property dispute because, on the respondents’ view of the law, the parties were not co-owners of the land. On that footing, the respondents sought summary dismissal of the applicants’ claim.
The legislation
Section 222 of the PLA defines ‘co-owner’ as ‘a person who has an interest in land or goods with one or more other persons’ either as tenant in common or joint tenant.
Elsewhere, ‘land’ is defined in the Interpretation of Legislation Act 1984 (Vic) as including ‘buildings and other structures permanently affixed to land, land covered with water, and any estate, interest, easement, servitude, privilege or right in or over land’.
The Tribunal’s decision
The Tribunal sided with the respondents and ordered that the proceeding be summarily dismissed; the Tribunal held that the applicants and the respondents were not ‘co-owners’ of the underlying land; the Tribunal had no jurisdiction under part IV of the PLA.
In hearing the parties’ arguments, the Tribunal noted:
[T]here is a distinction between a person who is an equitable co-owner in land by (say) a constructive trust to a person who holds an equitable interest as a beneficiary under a unit trust. Much will turn on the clauses set out in the unit trust and whether those clauses contemplate that the beneficiaries own any assets in the trust fund prior to it vesting.[2]
The Tribunal acknowledged that the parties had various rights in respect of the land, but held that ‘it is difficult to categorise those rights, interests or privileges as being immediate, in the sense that they give the applicants and the respondents an immediate right to or entitlement to possession of the [land]’.[3]
For the Tribunal, and consistent with prior authority including that of the High Court,[4] the terms of the relevant trust are key to the question of whether a beneficiary has a proprietary interest in the trust property in the sense of having an immediate right to possess it.
Turning to the terms of the trust deed in question, the Tribunal noted that its terms went some way to depriving its beneficiaries of any right to immediate possession; there were terms which, in the Tribunal’s view, had ‘the effect of alienating the beneficiaries from exercising what may be described as proprietary rights in relation to the [land] or other assets held by the [trust]’.[5]
Among the terms which the Tribunal recounted:
one term stated that ‘[a] unit shall not entitle the registered holder to any particular asset or part of the Fund’; and
elsewhere, there was a term empowering the trustee specifically to deal with the trust property.
The Tribunal concluded that ‘provisions of the Unit Trust deed are fundamentally inconsistent with the applicants and the respondents having an immediate right to possession of the [land]’.[6] It ultimately was this lack of an ‘immediate right to possession’ which meant the parties’ interest in the land via their interest in the trust fell short of a proprietary interest and, therefore, fell short of what would be required for them to qualify as co-owners of property in order to seek relief under part IV of the PLA.
Noteworthy obiter
While making clear that such matters were not determinative of its conclusion, the Tribunal observed that even if the parties had enjoyed an immediate right to possession, in circumstances where a trust holds only one item of co-owned property it would ‘defeat the utility’ of such a trust to allow a co-owner to rely on the PLA to force a sale where to do so would be to invoke ‘a mechanism to collapse the [trust]’.[7]
Comment
The applicants’ claim in Bedford seemingly was one worth arguing — the Tribunal said as much in the final paragraph of its reasons, noting that ‘the issues concerning jurisdiction were unprecedented’.[8]
The breadth of the definition of ‘land’ in the relevant legislation seems capable of extending to the rights of beneficiaries under a trust holding land. However, this must be tempered by the question of whether or not the relevant right or interest in land gives beneficiaries some sort of immediate possessory right. The terms of the trust deed in Bedford seemed to rule that out but, conceivably, another trust deed might allow it.
[1]: [2023] VCAT 1433.
[2]: Ibid [13].
[3]: Ibid [21].
[4]: Kent v SS ‘Maria Luisa’ (No 2) (2003) 130 FCR 12, the reasoning in which the High Court applied in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98.
[5]: Bedford v Mikelsons [2023] VCAT 1433, [27].
[6]: Ibid [29].
[7]: Ibid [34].
[8]: Ibid [36].