Cihan v Cihan

Supreme Court of NSW|2022-07-06|Before: Parker J

Judgment

These are proceedings involving a discretionary family trust on which I delivered judgment on 5 May: Cihan v Cihan [2022] NSWSC 538. This judgment assumes familiarity with my May judgment to which I will refer as "J1". It also uses abbreviations and terms used in the May judgment.
The parties in these proceedings are related; the plaintiff ("Mr Cihan") is the father of the first defendant ("Kadir"). The subject trust is called the "Cihan Family Trust" ("the Trust"). Under the Trust Deed, Mr Cihan was the Trustee and Kadir was the Nominator.
The dispute arose out of near-simultaneous attempts by Mr Cihan and Kadir to remove or neutralise the other. Kadir purported to exercise his power as Nominator under the Trust to remove Mr Cihan as Trustee and replace him with the second defendant ("CPPL"). Mr Cihan purported to exercise his power as Trustee to appoint himself and his other son, Memduh, as additional Nominators alongside Kadir.
In my May judgment, I concluded that the steps purportedly taken by Mr Cihan were effective, and those purportedly taken by Kadir were not. I adjourned the proceedings to allow the parties to agree, if possible, on the form of orders to give effect to my judgment, and on costs. The parties later agreed on the form of declarations to be made. Costs remain in dispute and are the subject of this judgment.

Costs

Mr Timothy McGrath (Mr Cihan's solicitor) lodged written submissions on costs and the indemnification order. Mr McGrath contended that the defendants should be ordered to pay Mr Cihan's costs and also that Mr Cihan should be indemnified from the assets of the Trust for his costs and expenses of the proceedings.

Costs inter partes

Mr McGrath relied on the general rule that costs follow the event (UCPR r 42.1). Mr Cihan was unsuccessful in upholding the validity of the Third Deed which I concluded was ineffective. He also unsuccessfully challenged the validity of the Fourth Deed on the ground that it was a fraudulent exercise of the power of appointment. But Mr Cihan successfully challenged the Fourth Deed on the grounds that it was held in escrow and was not validly served; it did not come into effect before the Sixth Deed and thus the Fifth Deed was also invalid.
The practical effect of these conclusions is that Mr Cihan remains as the Trustee and Kadir is no longer the sole Nominator with the unilateral power to appoint his own nominee as Trustee. Mr Cihan has therefore substantially succeeded in the proceedings. In my view, he is therefore entitled to the usual order for costs as against the defendants.

Costs out of the trust

Mr McGrath submitted that any order for costs payable by the defendants would not fully reimburse Mr Cihan for his costs of the proceedings. Mr Cihan therefore applied for an indemnity out of the Trust assets.
In support of the application, Mr McGrath relied on UCPR r 42.25. I discussed the operation of the rule in Dixon v Dixon (No 2) [2022] NSWSC 944 at [47]-[84]. As Dixon demonstrates, there are some issues that arise in the application of the rule, but none arise in this case.
Mr Cihan did not seek judicial advice before bringing the claim. But that is not necessarily an obstacle to him recovering costs under Rule 42.25. This is especially the case given he was ultimately successful in the proceedings (see National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 at 279; Dixon at [79]).
In bringing the claim, I conclude that Mr Cihan acted reasonably in his capacity as Trustee. Any benefit he received from discharging a personal liability was "merely an incident" of his successful defence (see Barnes at 276. Cf Miller v Cameron (1936) 54 CLR 572 at 579).
Mr Cihan's position has been vindicated in these proceedings and he should be entitled to an indemnity out of the Trust assets. The effect of the indemnification order will be that Mr Cihan can immediately recover his costs in full from the assets of the Trust. If and when costs can be recovered from the defendants under the inter partes costs order, Mr Cihan will then be obliged to refund them back into the Trust.

Orders

The orders of the Court are: 1. The defendants pay the plaintiff's costs of the proceedings. 2. The plaintiff's costs of the proceedings be paid out of the Cihan Family Trust on a solicitor-client basis.

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. Decision last updated: 19 July 2022

At a glance

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Judgment (7 paragraphs)

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Cases Cited (4)

Cited By (1)