New South Wales Supreme Court CITATION : Application of Roger Dulhunty Alina Dulhunty Trust [2010] NSWSC 1023 HEARING DATE(S) : 3 September 2010 JUDGMENT DATE : 3 September 2010 JURISDICTION : Equity Division JUDGMENT OF : Hamilton AJ EX TEMPORE JUDGMENT DATE : 3 September 2010 DECISION : Advice that plaintiff justified in defending proceedings against him as trustee and entitled to use trust funds for his costs. CATCHWORDS : EQUITY [1439] - Trusts and trustees - Applications to Court for advice and authority - Petition a summons for advice - Generally - General principles CATEGORY : Procedural and other rulings CASES CITED : Burns v Burns [2008] QSC 173 Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Bishop Petar (2008) 237 CLR 66 PARTIES : Roger Dulhunty (Plaintiff) FILE NUMBER(S) : SC 290309 of 2010 COUNSEL : J Lazarus (Plaintiff) SOLICITORS : McLachlan Thorpe Partners (Plaintiff) - 4 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON AJ FRIDAY 3 SEPTEMBER 2010 2010/290309 - ALINA DULHUNTY FAMILY TRUST - THE APPLICATION OF ROGER DULHUNTY EX TEMPORE JUDGMENT - (See p 13 of transcript) 1 HIS HONOUR: These are proceedings brought by a trustee for judicial advice under section 63 of the Trustee Act 1925. 2 There have been, in the Dulhunty family, intense conflicts, including litigation, concerning family property. After a mediation, Jinks, Roger and Peter Dulhunty, who are siblings, became parties to a deed on 14 April 2008. At that time Ezekiel Solomon was the trustee of the Alina Dulhunty Family Trust. By clause 14 of the deed, Jinks, Roger and Peter agreed to be appointed trustees of the trust in place of Ezekiel Solomon. By clause 15 they agreed that, in the event of their appointment as trustees, they would resolve to exercise their powers to wind up the trust and distribute the net assets in proportions set out in that clause. By clause 17 they acknowledged that, in forming the view that the distribution of the trust assets in that fashion would be an appropriate exercise of discretion, they had taken certain matters into account. 3 They did not in fact become trustees of the trust until some fifteen months after the date of the deed. There was not a resolution to distribute the assets of the trust as provided in clause 15 for some further eleven months after that. That resolution was passed by majority vote of Jinks and Peter, with Roger dissenting. By summons filed on 13 August 2010, Peter and Jinks sought a declaration that the deed of 14 April 2008 is valid and binding and a declaration that Roger is bound to exercise his powers as a trustee to effect the promised distribution ("the substantive proceedings"). 4 Roger now seeks the advice of the Court that he would be justified in defending the substantive proceedings and would be entitled to have recourse to the assets of the trust for the purpose of paying his reasonable legal costs. 5 The principles governing the exercise of the discretion conferred on the Court by section 63 of the Trustee Act were addressed in some detail in the High Court in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Bishop Petar (2008) 237 CLR 66 particularly at paragraphs [54] to [76]. It is made plain in [74] that the present plaintiff should take no steps in defence of the substantive proceedings without first obtaining judicial advice about whether it is proper to defend the proceedings. 6 There have been laid before me a statement of facts, a bundle of relevant documents and a letter of advice by a solicitor to two grandchildren of Alina Dulhunty that the solicitor was of the firm view that the proposed distribution would constitute a breach of trust. I have also been shown an opinion of counsel as to the existence of matters that constitute defences that could be raised by Roger to the substantive proceedings. There are three areas which are adumbrated. 7 The first is that clause 15 constituted a breach of the principle that trustees must not bind themselves as to a future exercise of their discretion. That there was potential that the exercise would be a future exercise is emphasised by the fact that they had not, at that time, even become trustees. Furthermore, they did not do so for many months thereafter and the question of whether or not the discretion should be exercised in the relevant way did not arise for many further months. 8 Secondly, it is also suggested that the matters which clause 17 of the deed showed to have been considered by the intending trustees were not relevant or proper matters to be taken into account on an exercise of the discretion. 9 Thirdly, it is suggested that by becoming trustees in the circumstances that existed and binding themselves to exercise their discretion as to the distribution of assets in a particular way, Roger, Peter and Jinks were involved in a conflict of interest that would invalidate the exercise of discretion. 10 So far as the first of those potential defences is concerned, it seems clear to me that it is arguable that clause 15 is invalid as binding the trustees in relation to the future exercise of a discretion which, as I have already pointed out, was not in fact exercised until something like two years later. The law concerning this was reviewed with clarity by Chesterman J in the Supreme Court of Queensland in [47] to [51] of his judgment in Burns v Burns [2008] QSC 173. His Honour cites powerful authority in support of the proposition in [48] to [51]. 11 It is not, of course, for the Court to determine in these proceedings whether the defence would ultimately be made out or not. Final determination of that should take place in the substantive proceedings. However, it is clear, in my view, that the present plaintiffs have reasonable prospects of persuading the Court that clause 15 is unenforceable. On that basis alone, it appears to me that it is proper and appropriate for the present plaintiff to defend the substantive proceedings. 12 I do not propose to deal in detail with the other two defences that are suggested, but I should say at once that it appears to me that potentially there is a deal of substance in both those defences as well. 13 In those circumstances, I propose to make orders in the following terms: 1 Advise that the plaintiff would be justified in defending proceedings 2010/269851 in this Division of this Court. 2. Advise that the plaintiff is entitled to have recourse to the assets of the Alina Dulhunty Family Trust for the purpose of paying his reasonable legal costs of defending those proceedings. 3. Order that the plaintiff's costs of these proceedings be paid out of the Alina Dulhunty Family Trust. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.