Whether an investment in a class of units in one trust constitutes investment in a separate trust is a complex question and was a key issue in a recent case. In this article, Langton Clarke and Kristy McCluskey emphasise that the circumstances of each case need to be individually assessed and highlight the importance of obtaining legal advice when setting up a fund with multiple classes of interests.

The Aussiegolfa case

Aussiegolfa Pty Ltd was the trustee of a self-managed superannuation fund. Aussiegolfa invested in a registered managed investment scheme, the DomaCom Fund.

The responsible entity (RE) for the DomaCom Fund stated in its product disclosure statement that it was designed to simulate investment in direct property. This was achieved by creating sub-funds where specific property would be held so investors obtained a beneficial interest in that property only and not in any other assets (or exposure to other liabilities) in the DomaCom Fund.

Sub-funds would be created once investors in the DomaCom Fund selected a property they wished to invest in and capital was raised to purchase the property. In the interim, investors' subscriptions would be held in a cash pool.

When the relevant sub-fund was created, the applicable investors' interest in the cash pool would be applied to a particular class of units in the DomaCom Fund which comprised units in the sub-fund.

Aussiegolfa applied for interests in the DomaCom Fund and was subsequently issued with a class of units in the DomaCom Fund described as units in the Burwood Sub-Fund (the asset of which was a property acquired by the RE of the DomaCom Fund in Burwood, Victoria).

A key issue in the case was whether Aussiegolfa held an interest in a related trust for the purposes of the Superannuation Industry (Supervision) Act by virtue of its units in the Burwood Sub-Fund. Aussiegolfa argued the Burwood Sub-Fund was not a separate trust from the DomaCom Fund and therefore was not a related trust.

What did the court say?

The court said the Burwood Sub-Fund was a separate and distinct trust from the DomaCom Fund because the constitution for the DomaCom Fund facilitated the creation of a distinct trust attributable to a specific class of units.

Whether a particular class of units gives rise to a separate trust is assessed by reference to the general concepts of a trust and depends on the facts and circumstances of each case. The decision sets out several factors a court may have regard to in determining whether a class of units is attributable to a separate trust, including:

• Whether the trustee and unitholders had an intention to create a separate trust.
• The relevant fund's constitution.
• The relevant terms of issue.
• Any disclosure documents (including supplementary disclosure documents).
• Whether there is a single entity acting as RE, investment manager and custodian of the fund and class.
• Whether a class confers a right to a share of the income derived from the relevant property.

In this case, the court gave particular weight to the constitution and disclosure documents referable to the fund and class of units (which quarantined the rights of the unit holders and the liabilities of the sub-funds) in determining that the DomaCom Fund and the Burwood Sub-Fund were separate and district trusts.

How can we help?

If you are setting up a fund with multiple classes of interests, we can help with any questions and advise the best options for you.