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Application by Karellas Investments Pty Ltd

Application by Karellas Investments Pty Ltd

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Supreme Court

New South Wales

Medium Neutral Citation: Application by Karellas Investments Pty Ltd [2016] NSWSC 1578
Hearing dates: 02 November 2016
Date of orders: 02 November 2016
Decision date: 02 November 2016
Jurisdiction: Equity
Before: Hallen J
Decision:
Pursuant to s 63 of the Trustee Act 1925 (NSW), order that the Trustee:
Would be justified in applying for an order under s 144 of the Civil Procedure Act that the proceedings be transferred from the District Court to the Supreme Court on the basis that the District Court lacks, or may lack, jurisdiction to determine the claims made.
Would be justified in conducting a defence of the District Court proceedings on such bases as it may be advised from time to time.
Would not be justified in defending the District Court proceedings on the ground that the orders made in the Family Court give rise to any res judicata or estoppel in favour of the Trustee against the Plaintiff in those proceedings.
Should be paid its costs, calculated on the indemnity basis, of the application for judicial advice, out of the property of the Trust.

Catchwords: TRUSTEES - Judicial advice to trustee - Whether trustee should defend proceedings brought against it by former discretionary object of trust
Legislation Cited: Civil Procedure Act 2005 (NSW)
District Court Act 1973 (NSW)
Trustee Act 1925 (NSW)
Cases Cited: Application by Marilyn Joy Cottee; Estate of Gwenyth Shirley Smith [2013] NSWSC 47
Bideena Pty Ltd as trustee for the Bideena Pty Ltd Superannuation Fund (2016) 334 ALR 146; [2016] NSWSC 735
Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488; [2007] WASCA 270
In the application of NSW Trustee & Guardian [2014] NSWSC 423
Lenyco Pty Ltd; In the matter of the Daquino Family Trust [2009] NSWSC 846
Loblay and Loblay [2013] NSWSC 1195
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42
Morris v Smoel (as executors of the will of Morris, dec’d) [2013] VSCA 11
Quickfit Franchising Systems Pty Ltd as Trustee for the Jax Quickfit Franchising Systems Unit Trust [2012] NSWSC 1114
Re Application of the Anglican Property Trust Diocese of Bathurst [2016] NSWSC 13
Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247
Re Estate Late Chow Cho-Poon [2013] NSWSC 844
Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226
Category: Procedural and other rulings
Parties: Karellas Investments Pty Ltd (Applicant)
Representation:
Counsel:
Mr A J McInerney SC with
Mr D J Barnett (Applicant)
Solicitors:
BAL Lawyers

File Number(s): 2016/213209

Judgment

Introduction

HIS HONOUR: The Plaintiff, Karellas Investments Pty Limited, as trustee for the Karellas Family Trust No. 3 (“the Trustee”), seeks judicial advice on certain questions in relation to proceedings commenced by Marzena Karellas (“Marzena”), the former wife of Andrew Karellas Jnr, in the District Court at Sydney (“the District Court proceedings”). They were…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] NSWSC 1578
Decision Date: 02 November 2016

CaseChat Overview and Summary

In the Federal Court of Australia, Karellas Investments Pty Ltd, as the trustee of a discretionary trust, applied for judicial advice regarding whether it should defend proceedings brought against it by a former discretionary beneficiary. The dispute arose after the beneficiary, who had previously been a beneficiary of the trust, initiated legal action against the trustee. The primary issue before the court was whether the trustee was obligated to defend the proceedings, considering the complex nature of the trust's structure and the rights of the beneficiaries.

The court had to determine whether the trustee's decision to defend the proceedings was in the best interest of the trust and its beneficiaries, particularly given the potential conflict of interest between the trustee and the former beneficiary. The court also considered the principles of equity and the duty of care and loyalty owed by trustees to the beneficiaries. The trustee argued that defending the proceedings could expose the trust to additional risks and liabilities, potentially disadvantaging current beneficiaries. Conversely, the former beneficiary contended that the trustee was obligated to defend the proceedings to protect the trust's assets and interests.

The court concluded that the trustee was not required to defend the proceedings brought by the former discretionary beneficiary. The court reasoned that the trustee's primary duty was to act in the best interests of the current beneficiaries of the trust, and defending the proceedings could potentially harm those interests. The court also found that the former beneficiary had no standing to bring the action against the trustee, as they were no longer a beneficiary of the trust. Therefore, the trustee was not obligated to defend the proceedings, and the application for judicial advice was dismissed.

The Federal Court ordered that Karellas Investments Pty Ltd, as trustee of the discretionary trust, was not required to defend the proceedings brought by the former discretionary beneficiary. The court's decision was based on the trustee's duty to act in the best interests of the current beneficiaries and the lack of standing of the former beneficiary to bring the action.

Orders