Re Dion Investments Pty Ltd [2013] NSWSC 1941

Analysis

The Dion Family Trust was set up by deed as a discretionary trust in Papua New Guinea in August 1973 when Papua New Guinea was an external territory of Australia. It contains the following clause:

’15 [all potential beneficiaries] or any of them may at any time with or without the consent of the Trustee by deed revoke all or any of the trusts hereby declared and declare other trusts of the settled property and income derived therefrom in favour of such person or persons the said [potential beneficiaries] or any of them shall in their absolute discretion determine with or without a like power of revocation and variation PROVIDED THAT no trusts so declared may be declared in favour of the Settlor, the Trustee or any beneficiary who declares such trusts and they shall not nor shall any of them derive any benefit of any kind by virtue of trusts so declared… ‘.

All potential beneficiaries of the trust live and have always lived in New South Wales and the administration has always taken place there. However the original trustee was incorporated in Papua New Guinea and the original funds were settled there. Papua New Guinea is now an independent state. The trust deed is considered inadequate in the current economic climate and the trustees, Dion Investments Pty Ltd (the trustees) applied to the court in New South Wales for judicial guidance and for the trust deed to be amended and the trusts varied. The following questions arose:

1. 1. Where is the proper law of the trust?
2. 2. Did the court have jurisdiction to deal with application?
3. 3. Was there a power to vary and, if so in what manner?

Held:

1. 1) The proper law of the trust was that of Papua New Guinea [31]. The proper law of the trust is ascertained at the time it is set up and not affected by subsequent changes in trustees or the situation of assets. The document itself did not indicate what the proper law was so that the general law and the Hague Convention on the Law Applicable to Trusts and their Recognition (Hague, 1 July 1985) were relevant. Even though Papua New Guinea had not signed the Convention this was not of great moment since the tests under the Convention and the general law were not very, if at all different. They were (a) the place of administration of the trust designated by the settlor, (b) the situs of the assets, (c) the place of residence or business of the trust, and, (c) the objects of the trust and the places where they are to be fulfilled. The fact that the settlor went out of his way to set up a trust in Papua New Guinea, together with the situation of the assets and the original trustee’s place of business there were sufficient to make that the proper law of the trust [25].
2. 2) The court had jurisdiction to deal with the matter both under the wide scope of the Trustee Act of New South Wales and through the in personam jurisdiction which could be exercised over the trustee who was within the jurisdiction [37].
3. 3) There was no power to vary in the trust deed. Clause 15 dealt with a declaration of new trusts and then provided that those new trusts may be ‘with or without a like power of revocation and variation’ so that the word ‘variation’ had no sense unless it referred to the powers that existed to revoke and declare trusts and there was also authority that in recent times discretionary trusts were usually subject to a power to make fundamental changes in the structure of the trust deed so that there was no need to be too technical in constructing the provisions of clause 15. However, only one person remained alive who still had a power of revocation and amendment. If those powers were exercised the new trust had to exclude the person who exercised them from any benefit. It did not seem appropriate that a person should be entirely excluded from benefit which would not normally occur with a mere power of variation consequently ‘variation’ in clause 15 had to be treated as if it were a reference to a declaration of fresh trusts. Nor was s81 of the Trustee Act capable of being used to modernise the trust deed as had been suggested. The basic rule was that once a person had given up his property on trust then that trust was unalterable. Management and administration in the English equivalent of s81 was management and administration of the trust property and could not include the equitable interests which the settlor had granted in the property. However, where advantageous dealings fell within management and administration and incidentally affected beneficiary rights these could be approved [63].

YOUNG AJ Introduction [1] On 10 August 1973 a trust deed setting up the Dion Family Trust (a discretionary trust) was executed. The parties were Matthias Wentworth Allen as settlor and Green View Pty Ltd as trustee. The settlor was a Wollongong accountant, the trustee was a company incorporated in Papua New Guinea and having …

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