Cihan v Cihan

1. [1]

   These proceedings arise out of a dispute over the control of a discretionary family trust. The assets of the trust consist of six properties with a total value of about $40 million.

2. [2]

   The trust is called the Cihan Family Trust (“the Trust”). It was established in 1997 on the instructions of Mehmet Cihan, who is of Turkish extraction. He is the family patriarch. His wife is Aysel Cihan. In the rest of this judgment I will refer to them as “Mr Cihan” and “Mrs Cihan”. Without intending any disrespect, I will refer to Mr and Mrs Cihan’s children and grandchildren by their given names.

3. [3]

   Mr and Mrs Cihan have two sons, Kadir (also known as Sam) Cihan and Memduh Cihan. Kadir has four children: two daughters, Havva and Leyla; a son, Mehmet; and a younger daughter, Tuba. Memduh has one son, Juneyt, and one daughter, Aylin.

Claims for determination

1. [4]

   The Trust was established by deed executed in May 1997, to which I will refer as the “Trust Deed”. Mr Cihan was the trustee for the Trust (“the Trustee”).

2. [5]

   The Trust Deed provided in the usual way for the income and capital of the Trust to be distributed, according to the Trustee’s discretion, among a group of nominated beneficiaries. The Trustee was given power to add persons to, and remove persons from, the list of beneficiaries. The Trustee also had power (subject to some limitations) to amend the terms of the Trust.

3. [6]

   As is common with discretionary family trusts, the Trust Deed provided for there to be a “Nominator” to the Trust. The Nominator was to have power to replace the existing Trustee with a new Trustee. The Trust Deed specified the Nominator as Kadir.

4. [7]

   Between them the parties have signed five later deeds, or purported deeds, which alter or supplement, or purportedly alter or supplement, the terms of the Trust. For convenience I will refer to these instruments as the “Second Deed”, the “Third Deed”, and so on.

5. [8]

   Mr Cihan is the plaintiff in the proceedings and Kadir is the defendant. The parties are in dispute as to the identity of the Trustee and the Nominator. Mr Cihan contends that Kadir has been removed as the Nominator. Kadir denies this and contends that he has removed Mr Cihan as Trustee, replacing him with Cihan Property Pty Limited (“CPPL”), the second defendant.

6. [9]

   Initially there was a claim by Mr Cihan that the provisions in the Trust Deed creating the office of Nominator and appointing Kadir to that office were ineffective, or were unintended and should be removed from the Deed by way of rectification. That claim was abandoned just before final submissions were made. The remaining claims centre on the Nominator and Trustee appointments made, or purportedly made, in the Third Deed, the Fourth Deed and the Sixth Deed.

7. [10]

   In March 2018, by the Third Deed, Mr Cihan purported to exercise his power as Trustee to amend the Trust Deed so as to replace Kadir as Nominator with Memduh. Kadir was named as a party to the Third Deed but refused to sign it. Mr Cihan contends that the purported amendment was effective anyway. Kadir contends that it was not, and that the purported amendment was beyond Mr Cihan’s power as Trustee in any event.

8. [11]

   About two and a half months later, by the Fourth Deed, Kadir purported to exercise his power as Nominator to remove Mr Cihan as Trustee and appoint CPPL in his place.

9. [12]

   The parties to the Fourth Deed were Kadir and CPPL. Mr Cihan was not a party and was not notified of its execution. If the Third Deed was valid and effective, Kadir was no longer the Nominator and had no authority to remove Mr Cihan as Tustee. And Mr Cihan contends that, even if Kadir was still the Nominator at the time, the Fourth Deed was still invalid or ineffective. There was no independent challenge to the Fifth Deed. But on Kadir’s behalf it was accepted that the Fifth Deed stood or fell with the Fourth Deed.

10. [13]

    About a week after the Fourth and Fifth Deeds, and in ignorance of their execution, Mr Cihan purported by the Sixth Deed to vary the Trust Deed so as to appoint himself and Memduh alongside Kadir as the Nominator. The Sixth Deed was a deed poll, executed by Mr Cihan alone. If the Fourth Deed was valid and effective, Mr Cihan was no longer Trustee and lacked authority to amend the Trust Deed. And Kadir contends that, even if Mr Cihan was still the Trustee at the time, the Sixth Deed was still invalid.

Summary and analysis of evidence

1. [14]

   Mr Cihan was born in Turkey in 1944. He married Mrs Cihan in about 1963. Kadir was born in 1967 and Memduh in 1969.

2. [15]

   The evidence does not identify when Mr and Mrs Cihan emigrated to Australia, although I assume it was not long after their marriage. Both Kadir and Memduh speak unaccented, or virtually unaccented, English (as well as speaking Turkish).

3. [16]

   Mr Cihan has never learnt English. He neither reads it nor speaks it. Indeed his education in Turkey appears to have been limited. He has only a rudimentary ability to read in Turkish.

4. [17]

   The relationships between Mr Cihan and his sons have had their difficulties. The first of those difficulties mentioned in the evidence involved Memduh. It arose out of Memduh’s relationship with a Romanian woman identified in the evidence as “Claudia”. They married in 1992. Mr Cihan (and, it seems, Mrs Cihan) did not approve.

5. [18]

   The marriage between Memduh and Claudia led to estrangement between Memduh and Mr Cihan. Memduh and Claudia were however divorced in October 1996. This led to a rapprochement between Mr Cihan and Memduh.

6. [19]

   There is a dispute about when the rapprochement occurred. What is clear is that contact had resumed when in May 1997 Memduh graduated from the University of New South Wales with a degree in engineering. Mr Cihan was very proud of Memduh’s achievement. Memduh was the first person in the family to obtain a university degree. In evidence are photographs taken on the graduation date, 20 May 1997, which show that both Mr and Mrs Cihan attended the graduation and posed for photographs with Memduh in his academic robes. Mr Cihan also arranged for an article referring to Memduh’s achievement to be placed in a local Turkish language newspaper.

7. [20]

   The Trust Deed was dated 15 May 1997, which was five days before Memduh’s graduation. It was prepared by Hakki Sayan. Mr Sayan is a solicitor who now has his own practice, but at the time was an employed solicitor with the firm G H Healey & Co. He was only recently qualified, having joined the firm in 1996.

8. [21]

   Mr Sayan is also of Turkish extraction and speaks fluent Turkish. It was apparently as a result of mutual contacts in the Turkish community that Mr Cihan went to Mr Sayan to have the Trust Deed prepared. In fact Mr Sayan had previously been a teacher and through that work had already met Memduh.

9. [22]

   The parties to the Trust Deed were Mr Sayan as Settlor and Mr Cihan as Trustee. The Deed consisted of a set of standard form clauses with a page of schedules identifying the particulars of the specific trust. The settlement sum was $10. The eligible beneficiaries were Mr Cihan; Kadir; Memduh; and Kadir’s children, Havva, Leyla and Mehmet (none of Mr Cihan’s other grandchildren had been born at that point). The Nominator, as already mentioned, was Kadir.

10. [23]

    Perhaps reflecting Mr Sayan’s inexperience, the Deed was an inartistic instrument. It was riddled with typographical errors. Some provisions in it repeated others. Also the numbering of items in the schedule did not line up with the references in the operative clauses.

11. [24]

    There was a dispute in the evidence about the circumstances in which the Trust Deed was prepared and executed. According to Mr Cihan and Memduh, Mr Sayan provided little or no explanation of the terms and effect of the Deed. In particular, he did not refer to the power which Kadir’s appointment as the Nominator would give him over the affairs of the Trust. Kadir and Mr Sayan, for their part, said that Memduh was not even present; Kadir was. On their version of events, Mr Sayan did provide an explanation of the terms and effect of the Deed, which included a reference to Kadir’s role as Nominator.

12. [25]

    As a result of the abandonment of the rectification case, neither party asked me to resolve this dispute and I have not tried to do so. What was common ground was that the establishment of the Trust resulted from a desire to minimise Mr Cihan’s tax. It was contemplated that the Trust would invest in property and the income generated would be apportioned among the members of Mr Cihan’s family so as to split the income and reduce the tax payable.

13. [26]

    Although in the end there was no dispute that a rapprochement between Mr Cihan and Memduh took place, the evidence still left it unclear how complete that rapprochement was. But it is not necessary to go into this and I can pass over the next ten years or so.

14. [27]

    In 2007 and 2008, relations between Memduh and Mr Cihan broke down completely. They were to remain estranged for about ten years, although contact between Memduh on the one hand and Kadir and his children on the other appears to have continued, at least for parts of that period.

15. [28]

    It was following the estrangement from Memduh that the Second Deed was executed. The Deed was prepared by Mr Angelo Andresakis, solicitor. Its validity was not in issue before me, and there was little or no evidence about the circumstances in which it was prepared.

16. [29]

    The Second Deed was dated 11 September 2008. The parties were Mr Cihan as Trustee and Kadir as Nominator. The Deed recited that Mr Cihan as Trustee had power to amend the terms of the Trust with the consent of Kadir. In fact, the relevant clause in the Trust Deed did not require the Nominator’s consent for the Trustee to make such amendments; this was presumably overlooked by the parties and Mr Andresakis.

17. [30]

    In the Deed, Mr Cihan amended the schedule to the Trust Deed so as to remove Memduh as a designated beneficiary and to add Mrs Cihan and Kadir’s daughter Tuba (who had been born since the Trust Deed had been executed). Mr Cihan also purported to appoint an “alternate trustee” upon his death. This “alternate trustee” was Mrs Cihan and Kadir acting jointly. In fact, it was the Nominator who had the power to appoint any new or additional Trustee and there was no provision in the Trust Deed for the appointment of an “alternate trustee”. In the events which have happened it is not necessary to consider the effect, if any, of this clause.

18. [31]

    Over time, six properties were acquired by Mr Cihan for the Trust. Five of them were commercial properties. The sixth was a residential property purchased for Kadir’s benefit. Some of the properties were acquired with the help of bank finance. By the time of the events which are relevant for the purposes of these proceedings, the bank financier was the National Australia Bank (“NAB”).

19. [32]

    In 2010, Mr Cihan and Kadir approached the accountant who handled Mr Cihan’s financial affairs, Mr Altug Sanli, to transfer one of the properties from the Trust into a superannuation fund. A fund called the “Cihan Family Superannuation Fund” (“the Fund”) was established and a property in Liverpool Street, Sydney, (or part of that property; the evidence on this question is not clear) was duly transferred into it.

20. [33]

    The main beneficiaries of the Fund were Kadir and members of his family. The Fund’s 2016 financial statements show net assets of $4.2 million. Kadir’s superannuation benefit accounted for 36% of this; his daughters Havva and Leyla accounted for a further 35% and 19% respectively. The remaining share seems to have belonged to Mr Cihan. The trustee of the Fund was Cihan Family Pty Limited (“CFPL”). Three of the four shareholders of CFPL, and three of its four directors, were Kadir, Havva and Leyla. The other director was Mr Cihan.

21. [34]

    In 2012, there was a falling-out between Kadir and Mr Cihan. Prior to the dispute, Kadir had been working in a business operating out of one of the properties owned by the Trust. As a result of the dispute, he ceased to do so. Contact between Kadir and Mr Cihan does not seem to have ceased completely, but thereafter Kadir was no longer involved in Mr Cihan’s financial affairs.

22. [35]

    By now Mr Cihan was estranged (at least financially) from both of his sons. This state of affairs lasted for five years, until late 2017, when he reconciled with Memduh.

23. [36]

    Following his reconciliation with Memduh, Mr Cihan wanted to adjust the financial provision he had made for his sons so that they and their families were treated equally. Memduh agreed to organise this with Mr Andresakis. This resulted in the preparation of the Third Deed as well as new wills for Mr and Mrs Cihan. The documents appear to have been prepared in February or early March 2018.

24. [37]

    The Third Deed was drafted with three parties: Mr Cihan, Kadir and Memduh. The Deed provided in summary for:

    1. (1)

       the Trustee to amend the Trust Deed so as to reinstate Memduh as an eligible beneficiary, and to include his children Juneyt and Aylin as eligible beneficiaries;

    2. (2)

       the Nominator to remove Mr Cihan as Trustee and replace him with Memduh and Kadir;

    3. (3)

       the Trustee to amend the Trust Deed by replacing Kadir as Nominator with Memduh;

    4. (4)

       the Trustee to amend the Trust Deed by adding to the clause dealing with the power to allocate capital an acknowledgement that the transfer of the Liverpool St property to the Fund had been a “mistake” and a provision that if Memduh and his children were “unable to receive” 50% of that property from the Fund Memduh was to receive 50% of its value out of the Trust, with the rest of the property of the Trust to be divided equally between Memduh and Kadir;

    5. (5)

       the Nominator to consent to the amendments and specifically the replacement of Kadir by Memduh as Nominator.

25. [38]

    For some reason not explained in the evidence, Mr Andresakis was not involved in the execution of the Third Deed or the wills which he had prepared (on the evidence, he does not seem to have been engaged in any other legal work for Mr Cihan after preparing the documents either). Instead, Mr Sayan witnessed the execution of the Deed by Mr Cihan and Memduh. He also witnessed the execution of Mr Cihan’s new will (the evidence does not expressly deal with Mrs Cihan’s new will).

26. [39]

    From [37(5)] above it is evident that in preparing the Third Deed Mr Andresakis, and the parties, remained under the misapprehension that the Nominator’s consent was required for the Trustee to amend the Trust Deed. Kadir was asked to execute the Third Deed alongside Mr Cihan and Memduh, but he refused (or at least failed) to do so. The surrounding circumstances are in issue and I discuss them in more detail in a later section of this judgment.

27. [40]

    Kadir’s refusal or failure to execute the Third Deed left the parties at loggerheads. On 10 May, Kadir retained the law firm Bartier Perry to act for him in the dispute. The solicitors in the firm with the carriage of the matter were Mr Gerald Basha and Mr Peter Kramer. Over the following few weeks, Mr Basha and Mr Kramer prepared the Fourth Deed and the Fifth Deed.

28. [41]

    The Fourth Deed was styled “Deed of Removal and Appointment of Trustee”. The parties were Kadir and CPPL. By the Deed Kadir exercised his purported power as Nominator to replace Mr Cihan as Trustee with CPPL. At the time the sole shareholder and director of CPPL was Ismail Elutsu, who is Kadir’s brother-in-law. Later Mr Elutsu was replaced as sole shareholder and director by Kadir’s daughter, Leyla.

29. [42]

    The Fifth Deed was styled “Deed of Variation”. The parties were again Kadir and CPPL. The Deed recited CPPL’s purported appointment as Trustee of the Trust, as purportedly effected by the Fourth Deed. In the Deed CPPL purported to amend the Trust Deed so as to require the Nominator’s (Kadir’s) consent to the addition of any eligible beneficiaries or the amendment of the Trust Deed. CPPL also purportedly amended the Trust Deed so as to impose limitations on the powers of the Trustee. The Trustee was required to obtain the prior written consent of the Nominator to the acquisition of any asset, or the incurring of any expenditure, exceeding $5,000; for the disposal of any asset of the Trust; or for any borrowing or guarantee, or any grant of security over the assets of the Trust.

30. [43]

    The Fourth and Fifth Deeds bear the date 5 June 2018, but were in fact signed on 31 May by Kadir and Mr Elutsu (for CPPL). Although signed, they were retained by Bartier Perry pending communications with the NAB. Under the Trust’s loan facilities, a change of Trustee without the Bank’s consent was an event of default. The precise instructions given to Bartier Perry are in issue and I set out the evidence bearing on this question in a separate section of the judgment below. I also there consider the evidence on Kadir’s broader intentions in executing the Deed.

31. [44]

    For present purposes, it is enough to say that on 1 June Bartier Perry wrote to the NAB seeking consent to the amendments in the Fourth Deed. A further letter was sent instructing the Bank, on behalf of Kadir, Havva and Leyla as three of the four shareholders and directors of CFPL, to withdraw Mr Cihan’s authority to operate the Fund’s bank accounts. The Bank was persuaded to freeze the Trust’s account (and those of the Fund), but formal consent to the terms of the Fourth Deed was not forthcoming.

32. [45]

    Mr Cihan and Memduh became aware that something was afoot when the NAB froze the bank accounts for the Trust and Fund. This happened on 4 June. They retained Mr Morris Maroon, solicitor. This resulted in the preparation and execution of the Sixth Deed.

33. [46]

    The Sixth Deed was a deed poll made by Mr Cihan purportedly as Trustee. By the Deed Mr Cihan purported to amend the Trust Deed by adding the names of Mr Cihan and Memduh as additional Nominators alongside Kadir and adding a requirement that actions taken by the Nominator be taken by majority.

34. [47]

    Under New South Wales trustee legislation referred to in more detail below, a new trustee may be appointed to a trust by way of deed registered with the Registrar General. Mr Maroon registered the Sixth Deed on the date it was executed, 8 June 2018. On 13 June he delivered a copy by hand to Kadir.

35. [48]

    At some point, in circumstances not revealed by the evidence, the 5 June date was inserted into the Deed by one of the solicitors at Bartier Perry. Nevertheless, the correspondence with the NAB continued. In October Ms Vicki Antoun of the Bank wrote to McCabe Curwood, who by then had taken over from Bartier Perry. Ms Antoun declined on behalf of the Bank to issue fresh certificates of title for the Trust properties without a written acknowledgement from Mr Cihan that he had been replaced as Trustee by CPPL.

36. [49]

    Mr Cihan thus remains in practical control of the Trust’s affairs. The Fourth and Fifth Deeds do not appear to have been registered; nor, it seems, was the Third Deed. Copies of the Fourth and Fifth Deeds were not provided to Mr Cihan until shortly before he began these proceedings in December 2018.

37. [50]

    In October 2019, Leyla was replaced as the sole director of CPPL by Richard Thomas De Lauret Arnold. Mr Arnold is an accountant. He was appointed so that, if CPPL’s claim to be Trustee is upheld, CPPL will be independently managed.

38. [51]

    In the plaintiff’s case evidence was called from Mr Cihan, Memduh and Mr Maroon. Mr Maroon’s evidence was not contentious and he was not required for cross-examination. Mr Cihan and Memduh were both cross-examined at some length.

39. [52]

    In the defence case evidence was called from Kadir, Mr Sayan, Mr Sanli and Mr Arnold. The evidence of Mr Sanli and Mr Arnold was not contentious and they were not required to give evidence. Kadir and Mr Sayan were both cross-examined.

40. [53]

    As a result of the rectification issue falling away, it is not necessary for me to make any findings as to the credit of Mr Cihan or Memduh (or Mr Sayan). Although most of the issues debated between the parties are ultimately matters of construction or interpretation of documents, Kadir’s credit remains potentially relevant because of the challenge to the Fourth and Fifth Deeds. I deal with this, to the extent necessary, when making more detailed findings below.

41. [54]

    In his affidavit, Mr Cihan stated that in “early 2018” he had a meeting at his home with Kadir and Memduh. Mr Cihan continued:

42. [55]

    According to Mr Cihan, Kadir then left. Mr Cihan telephoned him and asked him to come to Mr Sayan’s office on the following day, to which Kadir agreed. Kadir did not attend that meeting but did attend a later meeting at Mr Sayan’s office with Mr and Mrs Cihan and Memduh. Mr Cihan continued:

43. [56]

    In his affidavit, Mr Cihan did not say when he (or Memduh on his behalf) gave instructions for the preparation of the Third Deed to Mr Andresakis. The Deed however must have been prepared before the meeting with Mr Sayan, because Mr Cihan stated that he and Memduh had signed before Kadir left the meeting. Kadir was asked to sign as well but he refused. Mr Cihan did not say whether he and Memduh had signed before the meeting with Kadir began, or during that meeting.

44. [57]

    Mr Cihan stated that after Kadir left the meeting:

45. [58]

    According to Memduh’s affidavit, after Mr Andresakis had drafted the Deed and the new wills, Mr and Mrs Cihan and Memduh visited Mr Sayan’s office where Memduh and Mr Cihan signed the Deed. A day or two beforehand Memduh had contacted Kadir and described the provisions in the Deed and the wills, saying they made “everything equal between us”. He asked Kadir to attend the meeting at Mr Sayan’s office and sign as well. Kadir agreed. But on the day he did not arrive. Memduh telephoned him and asked him to come to the office and sign, but Kadir said he was busy. Kadir said he would come and sign another day.

46. [59]

    Memduh stated that after the meeting at Mr Sayan’s office where he and Mr Cihan signed the Deed, he and his wife attended a meeting with Mrs Cihan, Kadir, Kadir’s daughters Havva and Leyla and Havva’s husband. The meeting was held at Havva’s house.

47. [60]

    According to Memduh, at the meeting he gave Kadir copies of the Deed and the will and Kadir agreed to sign the Deed on the following Monday. But afterwards Memduh was told by Mr Sayan that Kadir had visited him but had not signed the documents. Mr Sayan asked Memduh to come and collect them.

48. [61]

    In Kadir’s affidavit, he agreed that he received a telephone call from Memduh at Mr Sayan’s office asking him to come and sign papers but said he was too busy to do so. His father then gave him copies of the Deed and his new will. Kadir read the Deed and saw that he and Memduh were to be the Trustee but he would be replaced as Nominator by Memduh. He also read his father’s will which said that Memduh was to be the sole executor and trustee of his father’s estate. Kadir told his father that this was wrong and he would not sign the Deed. Mr Cihan replied that Memduh had explained the Deed to him as being a fifty/fifty arrangement. Kadir said it was not and Memduh was trying to control everything. Mr Cihan asked him to speak to Memduh to sort it out.

49. [62]

    According to Kadir, in late March or early April there was a meeting at Mr Sayan’s office attended by Mr and Mrs Cihan, Memduh and his son, Juneyt, a friend of Kadir’s, and Kadir himself. Kadir stated:

50. [63]

    The was some cross-examination but it did not address the differences between the witnesses’ accounts.

51. [64]

    A handwritten file note of the initial conference between Kadir and solicitors at Bartier Perry on 10 May 2018 is in evidence. The note refers to “Eyyub” who appears formerly to have been an accountant or business advisor to Mr Cihan and with whom Kadir was in contact. The note relevantly states:

52. [65]

    Later that afternoon, Mr Basha forwarded Bartier Perry’s costs agreement. On the following day, Kadir responded accepting the terms of that agreement. He continued:

53. [66]

    At the time the email was sent, Kadir appears to have assumed that his daughter Layla would be the director, and possibly the shareholder, of CPPL. But Bartier Perry were concerned to ensure that the Trustee should not be associated with anyone who came within the definition of an “eligible beneficiary” in the Trust Deed. This apparently was for stamp duty reasons. Advice was sent to Kadir by Mr Ron Aurelius, another solicitor at Bartier Perry, on 15 May. Kadir responded later that afternoon:

54. [67]

    A meeting took place between Kadir and Mr Elutsu and Mr Basha and Mr Kramer of Bartier Perry on 31 May 2018. By this point CPPL had been incorporated. There is a brief file note by Mr Kramer of the meeting, which shows that it took place between 2.20pm and 4.00 pm. The note records:

55. [68]

    The following email exchange ensued:

56. [69]

    Following Kadir’s go-ahead, Mr Kramer emailed the letters to the Bank. The letter concerning the Family Trust relevantly stated:

57. [70]

    There are two copies of the Trust Deed in evidence. The copy produced by Mr Cihan shows a stamp duty imprint and appears to be a copy, or a copy of a copy, of the original Trust Deed as executed and stamped. The other copy in evidence shows the signatures of the parties but not the stamp duty imprint. It also shows some handwritten notes and amendments. It was the latter copy document which was attached to Bartier Perry’s letter to the Bank. Bartier Perry got it from Kadir, who expressly instructed them that it was a true copy of the original. Kadir may have got it from Mr Sayan, but that is not certain and does not need to be decided for the purposes of this judgment.

58. [71]

    Having emailed the letters to the Bank, Mr Kramer notified Kadir that he had done so. Starting on the following Monday, 4 June, the following exchange took place between Mr Kramer and Kadir:

59. [72]

    In fact, the Bank did respond. On the afternoon of 5 June Ms Antoun emailed Mr Kramer:

60. [73]

    Mr Kramer responded that Bartier Perry would provide a certified copy of the Trust Deed “in the next few days”. On 7 June he emailed Kadir:

61. [74]

    The request for a certified copy of the Trust Deed of course ran into difficulty because Kadir did not have access to the original Trust Deed. It seems that no certified copy was ever provided. As already stated, no further action took place so far as the NAB was concerned before the execution and registration of the Sixth Deed on 8 June and its notification to Kadir on 13 June.

62. [75]

    In an affidavit made on 24 November last year, shortly before the hearing, Kadir stated:

63. [76]

    In cross-examination, counsel for Mr Cihan put to Kadir the passage in Mr Basha’s email of 31 May about holding the documents in escrow until Bartier Perry had communicated with the NAB about the proposed change in Trustee, so as to avoid breaching the Trust’s loan agreement (see [68] above). The cross-examination continued:

64. [77]

    Counsel then put the passage in Mr Kramer’s note of the meeting on 31 May which referred to the instructions from the clients to hold the documents in escrow pending notification to the Bank of the intention to change the Trustee. Kadir responded:

65. [78]

    Counsel then put to Mr Cihan the statement in his affidavit that his intention was that the change of Trustee would take effect immediately. Kadir gave the following evidence:

66. [79]

    Counsel then put the following sentence in the affidavit in which Mr Cihan had asserted that he did not intend for the documents to be held in escrow until such time as the bank consented to the change of Trustee. Kadir’s explanation fastened on the word “escrow”. He said:

67. [80]

    Counsel also put to Kadir that it was incorrect to say, as he had in his affidavit, that at the time he signed the Deed he was unaware of any concern about potential breach of the loan covenants with the bank as a result of the change in Trustee. Kadir adhered to his affidavit evidence, even though the contemporaneous documents show quite clearly that he had been advised of this potential issue: see [67] above.

68. [81]

    In the light of this evidence, I cannot give any credence to Kadir’s affidavit evidence on this issue. Kadir’s own counsel accepted that the evidence was incorrect. Counsel submitted that I should not find that Kadir’s evidence was deliberately false. Whether or not that submission is sound, the evidence was very damaging to his credit generally.

Validity and effect of Third Deed

1. [82]

   Mr Cihan and Memduh signed the Third Deed but Kadir did not. On no view therefore was the Deed effective to remove Mr Cihan as Trustee. But Mr Cihan contends that it was effective to amend the terms of the Trust by making Memduh the Nominator instead of Kadir. That step did not require Kadir’s consent.

2. [83]

   Kadir disputes this contention. He denies that the Deed ever came into effect in the partial way for which Mr Cihan contends. He also contends that the power of amendment in the Trust Deed did not extend to the removal of the Nominator anyway. I will deal with the latter contention, which is more fundamental, first.

3. [84]

   The office of Nominator is dealt with in clause 17 of the Trust Deed, which provides (verbatim):

4. [85]

   At the end of the Trust Deed is a list of items described as “schedules”. Schedule 5 identifies Kadir as the Nominator and it is common ground that the reference in cl 17(a) to “schedule 6” is to be read as a reference to schedule 5. Similarly it is common ground that the reference in cl 17(a) to “schedule 7” is to be read as a reference to an unnumbered schedule which follows schedule 5 and lists the eligible beneficiaries.

5. [86]

   The power of amendment upon which Mr Cihan relied is found in cl 15A of the Trust Deed. It provides (verbatim):

6. [87]

   The removal and replacement of a trustee by registered deed is dealt with in Division 1 of Part 2 of the Trustee Act 1925. Section 6 relevantly provides:

7. [88]

   Section 9 relevantly provides:

8. [89]

   These provisions expressly apply where an appointment is made by deed under a power in the trust instrument: see ss 6(2)(f), 8(8). But it was not argued that they result in such an appointment being ineffective until the deed is registered.

9. [90]

   In support of their submission that the power in cl 15A of the Trust Deed could not be used to replace the Nominator, counsel for Kadir submitted that the office of Nominator played a vital role in keeping the otherwise extremely broad powers of the Trustee within reasonable limits. Counsel also submitted that if there was not some restriction on the Trustee’s powers in this regard, there could be an unseemly race between the Trustee seeking to remove the Nominator and the Nominator seeking to replace the Trustee.

10. [91]

    Counsel relied in support of their submission on the decision of Douglas J in the Supreme Court of Queensland in Jenkins v Ellett [2007] QSC 154. That case also concerned a discretionary trust. The trust deed provided for a “Principal” who had powers comparable to those of the Nominator in the present case. The Principal originally was the family patriarch (George Jenkins) who had been responsible for the establishment of the trust in question. The trust deed provided that on his death his executor was to become the Principal.

11. [92]

    Before his death George Jenkins exercised his power as Principal to appoint himself and his daughter as the trustee. Together they then purported to exercise the trustee’s power to amend the terms of the trust so as to appoint the daughter as Principal. Following the death of George Jenkins his grand-daughter obtained probate of his will appointing her as his executor. She then purported as Principal to appoint herself and her brother as additional trustees alongside her aunt.

12. [93]

    The trust deed had given the trustee power to “revoke add to release or vary any or all of the Trusts declared” or “to declare any powers or other trusts concerning the Trust fund”. Douglas J said (at [17]-[19]):

13. [94]

    In Kearns v Hill (1990) 21 NSWLR 107 the Court of Appeal had to consider the purported exercise of a trustee’s power in a discretionary trust to amend the terms of the trust so as to introduce a new class of beneficiaries. RP Meagher JA, who gave the leading judgment, emphasised that a discretionary trust is usually designed to give the trustee (at 109D-E):

14. [95]

    His Honour noted that in some cases a power to amend the terms of a trust had been read down so as not to destroy the “substratum” of the trust. But his Honour observed that in the case of a discretionary trust the “substratum” was difficult to identify beyond saying that such a trust was generally for the benefit of descendants of the person who had been responsible for its creation. See at 110G-111A. The validity of the amendment was upheld.

15. [96]

    Lewis v Condon (2013) 85 NSWLR 99 was another discretionary trust case with the trustee having a power to amend the terms of the trust deed (with the consent of the Appointor, who otherwise played a similar role to the Nominator under the terms of the present Trust Deed). Leeming JA, while not having to determine the question finally, expressed the preliminary view that the power could be used to alter the identity of the Appointor. His Honour referred to Kearns v Hill and stated that it was difficult to see why such an amendment would be impermissible. See at [89].

16. [97]

    Meanwhile, in Cachia v Westpac Financial Services Ltd [2000] FCA 161, Hely J had also considered the “substratum” cases. Cachia concerned the restructuring of a property trust. The trustee of the trust (in accordance with an extraordinary resolution of the unitholders) purported to amend the terms of the trust deed so that unitholders were deemed to have requested redemption of their units in exchange for the issue of units in another trust. This was challenged by a dissentient unitholder as an “expropriation” of his existing units.

17. [98]

    Hely J rejected the challenge. His Honour considered that even a “fundamental reorganisation” of a trust does not necessarily destroy its “substratum”. Furthermore it was difficult to identify what the “substratum” of the subject trust was. If there was one, it was no more precise than a “property trust in which units [were] issued to the public”, which remained the case following the restructure. See at [69]-[72].

18. [99]

    At [68] his Honour also observed that the “substratum” cases apparently reading down powers of amendment might be no more than applications of the equitable doctrine of fraud on the power (considered in more detail below). On this view, there is no rule of construction or other doctrine restricting the scope of the power of amendment at law. It is purely a matter for equitable intervention in appropriate cases.

19. [100]

    In his judgment in Jenkins, Douglas J distinguished the decision in Kearns and did not refer to the decision in Cachia. The judgment was considered by the Western Australian Court of Appeal in Mercanti v Mercanti (2016) 50 WAR 495. That case also concerned a discretionary trust. The trustee purported to exercise a power of amendment so as to alter the identity of the Appointor (equivalent to the Nominator in the present case). The amendment was upheld by Newnes and Murphy JJA in a joint judgment, and Buss P wrote separately to the same effect.

20. [101]

    The power of amendment in Mercanti was to “revoke, add to or vary any of the trusts, terms and conditions hereinbefore contained”. Both Buss P (at [153]) and Newnes and Murphy JJA (at [356]-[358]) emphasised that the power of amendment in the case before them was one which applied to all of the terms of the trust deed (subject to restrictions which were not relevant). This distinguished the case from Jenkins. It was therefore not necessary to determine whether Jenkins had been correctly decided.

21. [102]

    In my view, the present case is governed by the decision in Mercanti. The Trustee’s power of amendment extends to all of the terms of the Trust Deed, apart from exceptions and restrictions which are not currently relevant.

22. [103]

    Hely J in Cachia only suggested that the substratum cases involved the equitable doctrine of fraud on a power. In Mercanti, Buss P went further and adopted the suggestion as a correct statement of the law (at [101]). Newnes and Murphy JJA did not however find it necessary to decide the question. Nor is it necessary to decide the question here. But there are some features of this case which seem to me to support the suggestion.

23. [104]

    Any rule of construction, or other doctrine which reads down the terms of a Trustee’s power of amendment at law, must operate by reference to the terms of the Trust at its inception and not the later application of those terms in particular circumstances. It would be difficult to say that when the Trust was established, the replacement of Kadir as Nominator would necessarily and in all circumstances have involved an interference with the “substratum” of the Trust. What if Kadir had been incapacitated or for some other reason had become clearly unsuitable as the Nominator?

24. [105]

    If the argument by counsel for Kadir is correct, there would have been no power to remove him as Nominator, or even to vary the order of succession, even if it was undoubtedly in the Trust’s interests to do so. That would have been so even while the assets of the Trust still consisted only of the original settlement sum of $10. On the other hand, the equitable doctrine would allow for later events to be taken into account and for the interests of the Trust to be considered in the context of a particular exercise of the power.

25. [106]

    Counsel for Kadir also suggested that cl 17 of the Trust Deed, by providing for circumstances in which the Nominator would cease to hold office, and the line of succession if that occurred, implicitly prevented the Trustee’s power of amendment being used to alter the identity of the Nominator in some other way. But I find this argument (which does not appear to have been presented in any of the cases to which I have referred) unpersuasive. The difficulty is that a power of amendment is perfectly consistent with the existence of specified terms in the Trust Deed. Taken to its logical conclusion, the argument would prevent any amendments being made at all.

26. [107]

    The parties to the Third Deed, as drafted, were Mr Cihan as Trustee, Kadir as the “Old Nominator” and Memduh as the “New Nominator”. The recitals to the Deed stated:

27. [108]

    The relevant operative provisions were:

28. [109]

    The parties agree that the question is whether execution by Mr Cihan and Memduh was intended by those parties to give effect to the provisions of the Third Deed which did not involve Kadir. The question is to be determined objectively by reference to the circumstance of execution.

29. [110]

    The recitals, and the terms of cl 2, show that Mr Cihan and Memduh believed at the time of execution that Kadir’s consent was required. That may in fact have been incorrect, but it is nevertheless an important objective circumstance.

30. [111]

    So is the structure of the Third Deed itself. Clause 1 mixed together the exercise of the Nominator’s power to replace the Trustee (sub-clause (c)) with the exercise of the Trustee’s quite separate power to amend the Trust Deed (the other sub-clauses). Indeed, it is unclear who the “Trustee” was intended to refer to in sub-paragraphs (e) and (f). Was it Mr Cihan, or was it Kadir and Memduh, who had become the “Trustee” as a result of being appointed as such in sub-paragraph (d)?

31. [112]

    In my view the structure of the Deed makes it unnecessary to answer this question. The Deed was drafted as an integrated whole, to be executed by all the parties, without any need to consider which of the provisions involved the exercise of power by which of those parties. It is clear on the evidence that Mr Cihan and Memduh signed the Deed before Kadir was asked to do so and refused. It follows that when they signed, they should be taken as having intended that the Deed would become effective when all the parties had signed.

32. [113]

    Of course it would have been open to Memduh and Mr Cihan to agree, once it became clear that Kadir would not be signing the Deed, that it should nevertheless have effect between them. On Mr Cihan’s evidence, they recognised the need to “do something” about Kadir’s failure to sign. But there is no evidence that they went back to the Third Deed. To the contrary, what they did was to move on by having Mr Cihan execute the Sixth Deed.

Validity and effect of Fourth Deed (and Fifth Deed)

1. [114]

   Clause 12 of the Trust Deed governs the appointment and removal of the Trustee. It provides:

2. [115]

   The parties to the Fourth Deed were Kadir as “Nominator” and CPPL as “New Trustee”. The relevant operative provisions are found in clause 2:

3. [116]

   For Mr Cihan it was contended that (supposing Kadir was still, despite the Third Deed, the Nominator) his purpose in executing the Fourth Deed was improper; this was said to render the Deed invalid under the equitable doctrine of fraud on a power. Alternatively, the Deed, although signed on 31 May 2018, was held in escrow by Bartier Perry until after the Sixth Deed had been executed and registered, thus depriving it of effect. Also, the Deed had not been notified to Mr Cihan as Trustee before he executed and registered the Sixth Deed, and it was ineffective for that reason also.

4. [117]

   Counsel for Mr Cihan submitted that Kadir’s motivation in purporting to remove his father as Trustee of the Trust was to prevent Mr Cihan from giving effect to his plan to divide the assets of the Trust and the Fund equally between his two sons and their families. In other words, Kadir exercised his power as Nominator to take control the way in which the Trust was to be administered from Mr Cihan.

5. [118]

   Counsel pointed out that Mr Cihan had been responsible for the establishment of the Trust. He had also been responsible for the acquisition of all of the properties acquired for the Trust, including the provision of the necessary finance. In counsel’s submission, it was unthinkable for Mr Cihan to be pushed aside by Kadir. The power to replace Mr Cihan as Trustee was said to have been intended only to cover circumstances where he had become physically or mentally incapable, or was out of the jurisdiction for an extended period. It was not legitimate for Kadir to exercise the power merely because he disagreed with the way in which his father was proposing to manage the operations of the Trust.

6. [119]

   I have already referred to the doctrine of fraud on a power in its application to the exercise of a power of appointment to replace a trustee. Such a case came before the Court of Appeal in Baba v Sheehan [2021] NSWCA 58. The leading judgment was given by Emmett AJA, with whom the other members of the Court agreed. His Honour’s decision was based on the factual findings made at first instance, and in particular the finding that the appointor in that case acted in good faith and out of a legitimate concern with the management of the relevant trust. The appointor’s appointment of a corporation controlled by him as the new trustee was upheld.

7. [120]

   In a concurring judgment, Brereton JA reviewed some of the authorities on the doctrine of fraud on a power. He characterised the doctrine as applying to the exercise of a power with an intention contrary to, or not justified by, the instrument creating it: at [6]. The focus was not on the responsibilities of the trustee, but on the power of the appointor: at [7].

8. [121]

   In the context of a modern discretionary trust, his Honour stated that use by an appointor of a power to replace the trustee so as to maintain or exercise control over the trust will not necessarily be inconsistent with the purpose for which the power was conferred, provided that there is no intention on the appointor’s part that the appointee is to act otherwise than properly in the interests of the trust and in accordance with its terms: at [9]-[18].

9. [122]

   Counsel for Kadir relied on the decision, and in particular on the remarks by Brereton JA. Counsel also submitted that it was an overstatement to say that all of the property in the Trust had come from Mr Cihan. Some of it, in counsel’s submission, appeared to have come from retained profits or capital gains. Counsel observed that Kadir had himself contributed by working in the Trust business for a significant period of time.

10. [123]

    Counsel also submitted that Kadir’s execution of the Fourth Deed was effectively a defensive response to the Third Deed. Although that Deed purported to appoint both Kadir and Memduh as Trustees, that did not mean the relationship was equal. Memduh would be the sole Nominator. Thus, whatever Mr Cihan might say, from Kadir’s point of view the Third Deed would have left him at Memduh’s mercy.

11. [124]

    Counsel also submitted that Kadir’s purpose was not to usurp control of the Trust, but only to give him a say in its management. Counsel pointed to the provisions of the Fifth Deed (summarised at [42] above). All Kadir was doing was to ensure that, in future, any amendments of the Trust Deed and any significant dealings with Trust property could not take place without his consent.

12. [125]

    Counsel for Mr Cihan sought to distinguish Baba v Sheehan. Counsel submitted that the Trust was not necessarily a “modern discretionary trust” in the terms used by Brereton JA. The purpose of the Trust was to avoid tax which would otherwise have been payable by Mr Cihan on his income and assets. A by-product was to provide for Mr Cihan’s family, but the money all came from him.

13. [126]

    I do not accept this distinction. In my view the Trust is exactly the sort of trust to which Brereton JA was referring in Baba v Sheehan. It is all very well to say that Mr Cihan’s purpose was to avoid tax on “his” assets. If it were possible to achieve the flexibility and tax advantages associated with a discretionary trust structure while retaining legal ownership and control of the founder’s assets, then everyone would probably do it. But the point is that in order to achieve those results it is necessary for ownership and control of the trust property to be given up, as a matter of law, to the trustee.

14. [127]

    There was no suggestion of a sham in this case. Mr Cihan had no greater equitable interest in the property of the Trust than any of the other eligible beneficiaries. In particular, he had no more interest in the assets of the Trust than Kadir had.

15. [128]

    The facts of this case underline the difficulty in characterising an appointor’s purposes as being “foreign” to the trust. Counsel for Mr Cihan accepted that a loss of capacity on Mr Cihan’s part would have justified the exercise of the power to remove him. But Kadir apparently believed that his father was affected by dementia, although Leyla did not. Would the exercise of the removal power depend upon who was correct? Or would it be sufficient if (as was found in the case of the appointor in Baba) that Kadir genuinely believed that it was so? In this regard, it seems clear that by 2018 Mr Cihan was depending heavily upon Memduh; it is not surprising given the poor relationship between the brothers that Kadir interpreted this as “manipulation”.

16. [129]

    In one sense it may be correct that part of Kadir’s motivation was to avoid having to share the family assets equally with Memduh. But I think it would be equally true to say that Kadir’s purpose was to ensure that he have a “larger say” in the Trust, as he stated in his email of 15 May. In my view that was not, on the authorities, an illegitimate purpose. The challenge based on a fraudulent exercise of the power of appointment fails.

17. [130]

    Counsel for Mr Cihan contended that the effect of the evidence was that, although the Fourth Deed was signed by the parties on 31 May, it was held in escrow by Bartier Perry pending approval by the NAB. That appears never to have happened, but in any event it had not happened before the Sixth Deed, removing Kadir as Nominator, was signed and registered on 8 June and served on 13 June.

18. [131]

    In response, counsel for Kadir submitted that the key question was what instructions Kadir gave to Bartier Perry at the meeting on 31 May. The best evidence of this consisted of Mr Kramer’s file note and Mr Basha’s email. Kadir’s subsequent email of 5 June (see [71] above) was not relevant.

19. [132]

    Counsel for Kadir submitted that neither Mr Kramer’s note nor Mr Basha’s email stated in terms that the Deed was to be held in escrow until and unless approval was received from the Bank. Counsel emphasised that in Mr Kramer’s note, the escrow was stated as being “pending notification to” the Bank. Similarly, Mr Basha’s email referred to the Deed being held in escrow “until we have communicated with” the Bank. Counsel submitted that the “communication” or “notification” was constituted by Bartier Perry’s letter to the Bank of 1 June. The Deed therefore came into effect when that letter was received by the Bank (perhaps, strictly speaking, when it was sent).

20. [133]

    Counsel’s argument was focused on instructions given by Kadir but it must be remembered that Mr Elutsu attended the meeting of 31 May also, and he was giving instructions for the other party to the Deed, CPPL. It is therefore the joint instructions of Mr Elutsu and Kadir which are in issue. Mr Elutsu was not called as a witness.

21. [134]

    Accepting for the moment that the issue was confined to what was said at the meeting on 31 May, the note by Mr Kramer and the email from Mr Basha are only brief summaries of a meeting which took one hour and forty minutes. No doubt in the course of that meeting extensive advice would have been given, and explanation would have been sought by Kadir (and perhaps Mr Elutsu as well).

22. [135]

    Be that as it may, both the file note and the email expressly record that the solicitors were instructed to hold the Deed in “escrow” after it had been signed. No doubt Kadir is correct in saying that this “lawyer’s word” came from Bartier Perry. But equally there is every reason to think that it reflected, in substance, the instructions given by Kadir (and Mr Elutsu). The question is when the escrow was to terminate.

23. [136]

    As I have already indicated, the argument by counsel for Kadir was (as it had to be) that the escrow terminated when the Deed was “notified” or “communicated” to the Bank. But the difficulty with this is that it makes little practical sense. Why have an escrow period at all if it was to terminate before the Bank had had an opportunity to consider its response to the terms of the Deed?

24. [137]

    A related difficulty for counsel’s argument lies in the reason why instructions were sought by the solicitors to hold the Deed in escrow in the first place. This was to avoid the possibility of breaching the Trust’s lending covenant by replacing the Trustee without the Bank’s consent.

25. [138]

    Counsel submitted that the Bank would not have been entitled to withhold consent unreasonably. This meant that the Bank would have had only a limited amount of time, once notified of Kadir’s intention, to consider its position. The solicitors would have understood that this was so, and would have proceeded accordingly. On this view, so counsel submitted, the solicitors would have wanted to serve the Deed, in operative form, on the Bank, so as to set the time running.

26. [139]

    Even if this set of suppositions is logical (and I am not sure about that) it is hardly compelling. Another view, which seems to me to be equally, if not more, likely, was that breach of the covenant should be avoided by obtaining the Bank’s agreement to the replacement of the existing Trustee before it took legal effect. There is no evidence from the solicitors or anyone else that the thinking attributed to them by counsel’s argument actually underlay their advice to, and instructions from, Kadir and Mr Elutsu. Rather the reverse.

27. [140]

    In my view the letter of 1 June is itself weighty evidence of what instructions were given the previous day. It should not lightly be assumed that the letter was inconsistent with the instructions the solicitors had received.

28. [141]

    And the letter is in my view quite clear. It spoke of an “intention” to remove Mr Cihan as Trustee. The letter described the enclosed copy of the Deed as a “draft” and described its effect in terms of what would happen, not what had happened. The letter asked for the Bank’s requirements to “give effect” to the replacement of Mr Cihan as Trustee. It is also relevant that the Deed was not registered, or served on Mr Cihan, as had been contemplated (see [64] above).

29. [142]

    The solicitors were evidently proceeding on the basis that the Deed was not immediately effective, and would only come into effect after the Bank had consented to it (or, perhaps, if the Bank refused consent and further instructions were then received to proceed anyway). This is entirely consistent with Kadir’s own understanding, as reflected in the evidence he gave in cross-examination (see [76]-[79] above).

30. [143]

    There is a further point about the letter of 1 June. There is no evidence that the version of the Fourth Deed which was enclosed was a copy of the signed version of the Deed. The enclosure is described in the letter as a “draft” (see [69] above). If all that was enclosed was an unsigned draft, then, even on the argument from counsel for Kadir, the escrow would not have been lifted, because the Deed (as signed) would not have been “notified” or “communicated” to the Bank.

31. [144]

    I have so far dealt with the argument on the basis put by counsel for Kadir, namely that the question must be determined by reference to the instructions given by Kadir and Mr Elutsu to Bartier Perry at the meeting on 31 May. But it seems to me more likely that what happened on that occasion was that Kadir and Mr Elutsu simply signed the document and gave the solicitors instructions to hold it in escrow until they considered that it should be released. That view leads more directly to the conclusion which I have already reached.

32. [145]

    Counsel for Kadir also suggested that even if the Deed remained in escrow following the letter of 1 June, the escrow was subsequently lifted. This argument, as I understood it, focused on the fact that the Deed now bears the handwritten date 5 June. It is common ground that the handwriting is not that of Kadir or Mr Elutsu, and must therefore be the handwriting of one or other of the solicitors at Bartier Perry. The suggestion seemed to be that the dating of the Deed represented a decision that it should take effect as from that date.

33. [146]

    The difficulty with this argument is that there is no evidence about how and when the date came to be placed on the document. In particular there was no evidence from Kadir as to any instruction being sought, or advice given, in this regard. There was no evidence from the solicitors at all. As at 5 June, the solicitors were still in mid-negotiation with the Bank; there was no obvious reason, if the Deed had not been released from escrow beforehand, to release it on that date. Indeed the terms of Mr Kramer’s email to Kadir on 7 June ([73] above) suggest that Mr Kramer still at that point saw the replacement of the Trustee as something which would only happen in the future.

34. [147]

    In the circumstances, I am not prepared to draw any inference from the handwritten dating of the Deed. Indeed, I am not satisfied that the dating actually happened on 5 June itself. For all the Court knows, the document was dated later.

35. [148]

    For these reasons, I accept the contention by counsel for Mr Cihan. The Deed remained under escrow until after the execution, registration and notification of the Sixth Deed.

36. [149]

    Counsel for Mr Cihan contended that the terms of the Trust Deed implicitly required that notice be given to the Trustee of his removal for it to be effective, and further that any removal would only take effect at that point. Counsel presented two main arguments.

37. [150]

    Counsel’s first argument was that it would place the Trustee in an impossible position if his office could be terminated before he was notified of that termination. Counsel pointed to various provisions protecting the Trustee during his tenure in that office. These were provisions limiting his liability (cl 8); giving him indemnity out of the trust assets (cl 10); and entitling him to remuneration (cl 11). Counsel submitted that it could not have been intended that the Trustee might be deprived of these protections without his knowledge.

38. [151]

    Counsel’s second argument was similar but concerned the operation of the Trust more generally. Counsel referred as an example to the facts of this case: Mr Cihan was, on Kadir’s contention, removed as Trustee on 31 May, but was not notified of the removal before 30 June. In the meantime he resolved to distribute the income from the Trust for the year ended 30 June 2018 in a particular way. Counsel submitted that it would be intolerable if that distribution were liable to be invalidated, requiring repayment by the beneficiaries, upon proof that in fact Kadir had previously, unknown to all concerned, executed a notice of removal.

39. [152]

    In response to these contentions, counsel for Kadir made six points. First, there was nothing in the Trustee Act to require a notification to be given before it became effective. Nor, secondly, was there anything express in the Trust Deed. Counsel contrasted cl 12(b), which contained a requirement that the Trustee give the Nominator one month’s notice of resignation.

40. [153]

    Thirdly, counsel observed there was no authority to support Mr Cihan’s submission. Counsel’s fourth point was that to the extent that there was any authority, it was against the submission. Counsel referred to the decision of Boddice J in Perry v Nicholson [2017] QSC 163.

41. [154]

    Counsel then sought to answer the argument from counsel for Mr Cihan about the unreasonableness of the Trustee’s removal taking effect before he was aware of it. Counsel submitted that it was necessary to distinguish between two questions. One was when, as a matter of construction, removal had legal effect. The other was what remedies could actually be obtained against the Trustee if the Trustee was not notified of his removal until after it had happened.

42. [155]

    Counsel’s fifth point was that, even if removed, the former Trustee would remain a bare trustee at law and therefore entitled to the trustee’s usual indemnity: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 371; Trustee Act, s 59. Counsel also suggested that any attempt to sue the Trustee for breach of trust on the basis of lack of authority would be defeated by a defence of conventional estoppel.

43. [156]

    Counsel’s sixth point raised countervailing questions of convenience. Counsel asked rhetorically what would be the position if the Trustee could not be found, or successfully avoided service of the notice. Counsel submitted that it could not have been contemplated that the Nominator’s power to remove the Trustee might be defeated in this way.

44. [157]

    As to counsel’s first point, it is hard, given the way the parties have conducted the case, to see the non-applicability of the Trustee Act as anything other than neutral. In fact, however, counsel’s argument would result in the Fourth Deed prevailing over the Sixth Deed even though the latter Deed was registered first. That would arguably be inconsistent with the scheme of the Act, and in particular the vesting provisions in s 9. But this thought was not raised in argument and I pass it by.

45. [158]

    It is convenient to deal next with previous authority, or lack of it (counsel’s third and fourth points). The decision in Perry concerned a self-managed superannuation fund which contained a clause permitting the removal of one of the trustees if the removal was recorded in writing and notice was immediately given to the other trustee. A meeting of trustees was held at which a resolution was passed purportedly removing one of the trustees. There was no formal instrument of removal nor was formal notice in writing given to the other trustee. Nevertheless, Boddice J upheld the validity of the removal.

46. [159]

    The critical factor in the decision was that the resolution was recorded in a minute which satisfied the requirement of writing. The other trustee had signed the minute, and this constituted immediate notification to him. In my view the decision turned on its facts. It does not support the argument by counsel for Kadir in the present case.

47. [160]

    I now turn to counsel’s fifth and sixth points. It is not necessary to go into the debate between counsel about whether a conventional estoppel would arise. I only observe that the argument by counsel for Kadir apparently rests on the proposition that a failure to notify the removal, while it lasts, is equivalent to a representation that no removal has taken place. This seems to me to come perilously close to acknowledging an implication that until and unless notification was given, it was not to have any effect. Furthermore, a conventional estoppel might protect the Trustee against claims for breach of trust based on lack of authority, but would not so readily apply to give the Trustee a positive right to remuneration.

48. [161]

    The practical concerns raised by counsel for Kadir are, in my view, uncompelling. The answer would be to invoke the Nominator’s statutory power to appoint a new trustee by registered deed under Division 1, Part 2 of the Act, or, failing that, the Court’s power to appoint a new trustee under Division 1 of Part 3 of the Act. On the other hand, the argument for Kadir is not dependent upon notification being given within a reasonable time. On that argument an instrument of removal could go back months or years, invalidating all of the Trustee’s intervening acts. No one (outsider or beneficiary) dealing with the Trustee could have any certainty in such circumstances.

49. [162]

    Finally, I deal with the terms of the Trust Deed (counsel’s second point). I do not think that cl 17(b) is of any great significance. The imposition of a one month notice period for resignation is readily understandable as a necessity to allow the Nominator an opportunity to appoint a new Trustee. The absence from clause 17(a) of a date for the service of the notice is quite a separate matter.

50. [163]

    Furthermore, in my view there is in fact an implication to be derived from the terms of the Trust Deed. Clause 17(a) provides that the notice removing the Trustee must be placed with the records of the Trust. The evident purpose of the provision is to ensure that the identity of the Trustee is always clearly and explicitly recorded in the records of the Trust. It is difficult to see how the outgoing Trustee could comply with that obligation unless he had first been given notice of his removal.

51. [164]

    Taking all of these points into account, I uphold the argument presented by counsel for Mr Cihan. In my view, the Fourth Deed, being unregistered and unserved, did not take effect before the Sixth Deed was registered and served on Kadir.

Validity of Sixth Deed

1. [165]

   Counsel for Kadir contended that even if (as I have concluded) the Fourth Deed did not come into effect, and Mr Cihan remained the Trustee of the Trust as at the date he executed the Sixth Deed, he still had no power under the Trust Deed to make an amendment to remove and replace the Nominator. I have already rejected this contention in connection with the Third Deed. The Sixth Deed was therefore valid.

Conclusions and orders

1. [166]

   I have concluded that:

   1. (1)

      because the Third Deed was not signed by Kadir, it was ineffective;

   2. (2)

      execution of the Fourth Deed did not involve a fraud on the Nominator’s powers under the Trust Deed, but the Fourth Deed never took effect and the Fifth Deed was consequently invalid;

   3. (3)

      the Sixth Deed was valid and effective.

2. [167]

   The parties should bring in short minutes of order to give effect to these conclusions. The short minutes of order should also deal with the question of costs. If the parties are unable to agree I will hear further argument.

3. [168]

   The orders of the Court are:

   1. (1)

      Adjourn the proceedings to 9.30am on 24 May 2022 or such other time as may be arranged with my Associate.

   2. (2)

      Direct that the parties confer on the form of orders to be made to give effect to this judgment and to deal with costs, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.