1. Introduction
Three years ago, I wrote a blog on two Privy Council cases, Equity Trust (Jersey) Ltd. v Halabi and ITG Ltd v Fort Trustees Ltd.[1] Although they were unrelated, the Privy Council heard them together. The first was an appeal from the Court of Appeal for Jersey; the second was an appeal from the Court of Appeal for Guernsey. However, both were governed by Jersey law. The cases raised the question whether a prior trustee has priority over a successor trustee when the prior trustee makes an indemnity claim and the trust assets are inadequate to pay the indemnity claims of both trustees. The Board held: (1) the right of indemnity confers a proprietary interest in the trust assets on the trustee; (2) the proprietary interest survives the transfer of the trust assets to a successor trustee; and (3) the trustee’s indemnity extends to the costs of proving its claim. However, (4) while the minority of the Board concluded that the first-in time principle applied to give the original trustee priority over the successor trustee, the majority held that, as a matter of justice, equity, fairness, and common sense, the pari passu rule should be applied rather than the first-in-time rule.
The matter arose again in the recent High Court of Australia case, Naaman v Jaken Properties Australia Pty Limited.[2] However, in this case the issue was somewhat different, namely, whether a successor trustee owes a fiduciary obligation to a former trustee not to deal with the trust assets so as intentionally to destroy, diminish, or jeopardise the former trustee’s entitlement to indemnification out of the trust assets or the commensurate beneficial interest that the former trustee has in the trust assets. The majority of the court held that the successor trustee does not owe such a fiduciary obligation; the minority held that it does. For ease of reference, I include paragraph numbers from the case when quoting from specific passages.
For clarity’s sake I want to mention that while we usually refer to the trustee’s right to be indemnified out of trust assets for costs and expenses incurred by it, the right is actually better described as a two-fold right. First, if the trustee, which is after all personally liable for debts and liabilities it incurs, has paid or satisfied these itself, it is entitled to recoup the amounts (assuming that they were reasonably incurred) from the trust assets. Second, if the trustee has not paid the debts or liabilities, it is entitled to be exonerated for them and may apply trust assets to discharge the debts or liabilities. The two-fold right is recognised in the reasons of the majority and he minority.
2. Facts
Jaken Property Group Pty Ltd (‘JPG’) is the first trustee of the trust in question. The first respondent, Jaken Properties Australia Pty Ltd (‘Jaken’) is the successor trustee. The second respondent was the sole director of JPG until 2006, as well as a major beneficiary under the trust. The other respondents were persons and companies that were involved in Jaken’s dealings with the trust property. The appellant, Naaman, is a judgment creditor of the former trustee.
The primary judge found [61] that Naaman ‘is entitled by way of subrogation in equity to the rights of JPG to be indemnified out of the assets of the’ trust and that JPG’s right of indemnity extended to the judgment debt owed to Naaman. The primary judge also found [62] that Jaken ‘engaged in a dishonest and fraudulent design to strip itself of assets that might otherwise be available to satisfy JPG’s power of indemnity to which Naaman was subrogated’ and that the other respondents knowingly assisted in the dishonest and fraudulent design.[3] His Honour held that a successor trustee owns a former trustee a fiduciary obligation not to deal with the trust assets so as to destroy, diminish or jeopardise the former trustee’s entitlement to indemnification.
The majority of the Court of Appeal of the Supreme Court of New South Wales held that a successor trustee does not owe a former trustee such a fiduciary obligation, so the court allowed the appeal.[4]
Naaman appealed to the High Court, which dismissed the appeal by a majority.
3. Reasons of the Majority
Gageler CJ, Gleeson, Jagot, and Beech-Jones JJ constituted the majority. As already mentioned, the majority held, ‘a successor trustee does not owe a fiduciary obligation to a former trustee in respect of the entitlement of the former trustee to indemnification out of the trust assets or the commensurate beneficial interest that the former trustee has in the trust assets’. [6] This meant that the basis of the primary judge’s holding that the other respondents knowingly assisted in the first respondent’s dishonest and fraudulent design is removed. [11]
Based on established authority, the majority confirmed, ‘The interest which a trustee has in the trust assets that is commensurate with the entitlement of the trustee to be indemnified out of the trust assets for expenses and liabilities properly incurred in the execution of the trust’ is ‘properly characterized as a beneficial interest in the trust assets which takes priority over the beneficial interest that the cestuis que trust have in the trust assets’. [13]
However, by reference to Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq),[5] the majority pointed out that the difference is not solely a matter of priority. Both are indeed equitable proprietary interests, but they are different. The right of a trustee to be indemnified was formerly called a ‘lien’ or an ‘equitable charge’[6] that a court of equity can enforce, if necessary, by ordering a sale of the property and payment of the debt out of the proceeds. It is directed against the property. In contrast, the equitable relief available to a cestui que trust is not against the property but against the holder of the property (i.e., the trustee) and serves to ensure performance of the trust. This means ‘that the trustee holds the trust property for the cestuis que trust but subject to the interest of the former trustee’. [19]. As the Privy Council explained in Halabi,[7] (1) the trustee’s entitlement does not create a personal liability in anyone to indemnify the trustee; it is instead simply a right to have the trust property applied to pay the amount owed; and (2) the remedy to enforce the right is an order that the trust property be applied to pay the amount owed. [24, 25]
This means that the interest that a former trustee retains in the trust assets, whether described as a lien, charge, or a proprietary interest, enables the trustee to obtain the assistance of a court of equity to enforce its entitlement to have the trust assets applied to recoup its expenditure or to exonerate it from liability. And the court can then make an order requiring a sale of the trust assets and paying the amount owing to the former trustee. [27]
Until the court makes such an order, on the application of the former trustee, ‘a court of equity has ample power to … protect the equitable proprietary interest of the former trustee from being destroyed, diminished, or jeopardized by the conduct of the successor trustee’. [28] It can do so on the application of the former trustee. And therefore, it is up to the former trustee to take action to protect its interest.
In consequence, it was unnecessary to consider whether the successor trustee owed any obligation to the former trustee for a court of equity to be able to protect the former trustee’s entitlement from being affected adversely by any conduct of the successor trustee. This meant also that it was unnecessary to consider whether the label ‘fiduciary obligation’, should be applied. In the opinion of the majority, ‘a fiduciary obligation cannot exist other than as an incident of a fiduciary relationship of “absolute and disinterested loyalty” within the scope of which one party, the fiduciary, is recognized in equity as having a responsibility to act in the interests of the other party (or in their shared interests) to the exclusion of the fiduciary’s own interests’. [31]
The majority was of opinion that a fiduciary relationship should not be recognized in this novel setting [32] and pointed out that Australian authority has ‘cautioned against a tendency “too readily to classify as fiduciary in nature relationships which might better be seen as purely contractual or giving rise to tortious liability”’.[8] Therefore, the majority rejected the appellant’s argument that a fiduciary relationship between a successor and a former trustee should be superimposed on the entitlement to indemnification, simply because the successor trustee holds the trust assets subject to the former trustee’s beneficial interest and knows that the former trustee is entitled to be indemnified. [35] As Leeming JA stated in the judgment of the Court of Appeal:[9]
Many persons have equitable proprietary rights in the property of others, in circumstances where no fiduciary obligation is owed to them. Every equitable mortgagee, every equitable chargee, every unpaid solicitor with an interest in a judgment or compromise and every unpaid vendor with a lien enjoys rights which are properly regarded as proprietary, and those mortgagors, chargors, clients, and purchasers are susceptible to equitable relief commensurate with those rights. But fiduciary obligations are not owed by the mortgagors, chargors, clients or purchasers to the persons with equitable proprietary rights, and that is so even though to an extent they may be vulnerable to conduct which might defeat their equitable rights.
Nor does characterizing the equitable property as a beneficial interest turn the relationship between the parties into a fiduciary relationship. [37]
In this case, ‘the legal owner of the property, the successor trustee, holds trust property for the cestuis que trust in circumstances where that property is subject to the interest of the former trustee…. A successor trustee holding trust assets subject to the beneficial interest of a former trustee not only has its own entitlement to indemnification and commensurate beneficial interest in the trust assets but has an ongoing duty to deal with the trust assets in the performance of the trust’. [40]
While a successor trustee may deal with trust assets in a manner that affects the former trustee’s right to indemnification adversely, this does not make the former trustee vulnerable in a way that might attract a fiduciary obligation. It is simply the consequence of having trust assets transferred from one person to another. Vulnerability would only be relevant if the supposed fiduciary had a responsibility to act solely in the interests of the vulnerable party to the complete exclusion of its own interests, and that is not the case here. [42, 43]
Consequently, the majority held that Jaken was not in a fiduciary relationship with JPK and owed no fiduciary duties to it.
4. Reasons of the Minority
Gordon, Edelman, and Steward JJ, constituted the minority. The minority took the view that the successor trustee is under an obligation not to destroy, diminish or jeopardize the former trustee’s entitlement to be indemnified from the trust estate. The relationship between the two ‘is one by which the successor trustee assumes a responsibility to the former trustee as would reasonably entitle the former trustee to expect that that the successor trustee will act in relation to the trust assets in the interests of the former trustee to the exclusion of its own or a third party’s interest’. Thus, it is a relationship that attracts the duty of loyalty or the conflict principle that ‘is the irreducible core of the fiduciary obligation’ [54]
The minority relied on the unchallenged findings of the primary judge, inter alia, that the successor trustee defrauded creditors of the trust, including the former trustee, by transferring trust assets to others, which assets might otherwise be available to satisfy the former trustee’s right to indemnity. [56, 62]
The minority made the following observation about the relationship between the parties:
In this appeal, it is sufficient to say that a person will be in a fiduciary relationship with another when and insofar as that person has undertaken loyalty in the sense of undertaking to perform a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that they will act in that other’s interest to the exclusion of their own or a third party’s interest. [77]
and
The relationships that are, without more, generally recognized as fiduciary are therefore those where an undertaking of loyalty is “inherent in the position” of the fiduciary. [78]
The minority then lists a number of clearly recognized fiduciary relationships. But with respect, even though it is recognized that the categories of fiduciary relationship are not closed, it is a significant, and in my view an unwarranted leap to treat a successor trustee as a fiduciary toward a prior trustee. The danger in doing so is that if opens the floodgates and potentially makes all kinds of relationships into fiduciary ones. Canadian courts have, with reason in my opinion, been criticized in the past (often by Australian judges and lawyers) for doing exactly that,[10] and in my view the approach of the minority does so as well. By treating a successor trustee as a fiduciary is to cast upon it the well-known duties not to profit from the position and to avoid conflict between their duties and their own interests. In my opinion it is illegitimate to do that merely for the reasons adduced by the minority.
The minority is correct to say the description of the right of indemnity as a security interest in the nature of a lien or an equitable charge is inaccurate because a successor trustee does not owe a debt to a former trustee. The minority is also correct in stating that it is a fundamental error to treat a trust as a legal person that has the capacity to owe debts. [88] A trust is not a person and therefore cannot owe debts. Nor, for that matter, can it own any assets. Only the trustee can incur debts and hold title to assets.
The minority then goes on to equate the proprietary interest of a former trustee with that of the beneficiaries of the trust. [90] Yes, both have a beneficial interest in the trust assets but, as explained by the majority, the interests are different. The interest of a trustee to be indemnified (a proprietary interest) is directed against the trust property, and a court can enforce it by ordering a sale of the property and directing payment of the amount owed out of the proceeds. However, the rights of beneficiaries are not against the property but against the trustee. [19]
The minority is right to say that the issue in the case must be decided ‘by recognizing, first, that the former trustee in this case had an existing right of exoneration out of the trust property (not merely a contingent right) which gave rise to equitable proprietary rights in relation to the trust estate and, second, that the successor trustee was bound to prioritise that right over the claims of the beneficiaries of the trust. But in my opinion, while the successor trustee is in a fiduciary relationship with the beneficiaries of the trust, it does not follow that it is ‘also in a fiduciary relationship with a former trustee where the circumstances make apparent that the former trustee has a right of exoneration from the trust assets’. [94] And therefore, I believe that the ratio adduced by the minority, ‘where a person has undertaken to perform a function for, or has assumed a responsibility to, another as would thereby reasonably entitle that other to expect that they will act in that other’s interest to the exclusion of their own or a third person’s interest, such a relationship may be fiduciary’, is incorrect. So is the conclusion the minority draws that ‘the nature and contents of the rights [of beneficiaries and of former trustees as regards their right to be indemnified] in substance are the same’. [95] The majority has adequately refuted that opinion in my view.
I do want to underline that the minority does recognize that the fiduciary obligation it promotes arises only if the successor trustee acts intentionally so as to defeat the interest of the former trustee in the trust property. It should not arise if the prejudice to the former trustee’s interest is caused accidentally. [98, 101]
—
[1] [2022] UKPC 36, [2023] AC 877. See “Trustee’s Right of Indemnity” https://welpartners.com/blog/2022/12/trustees-right-of-indemnity/, posted 1 December 2022.
[2] [2025] HCA 1. I am indebted to Joel Nitikman for drawing my attention to this case.
[3] See Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517. By the way, ‘Pty’ is an abbreviation of ‘Proprietary’. It is used in Australia, South Africa, and New Zealand to indicate that the corporation is a private corporation.
[4] Jaken Properties Australia Pty Ltd v Naaman (2023) 112 NSWWLR 318.
[5] (2000) 202 CLR 588.
[6] The Privy Council disapproved of these terms in Halabi, footnote 1 supra and preferred the simple term ‘proprietary interest’ instead.
[7] Ibid.
[8] Maguire v Makaronis (1997) 188 CLR 449 at 474.
[9] Footnote 4, supra, p 331.
[10] For examples see Oosterhoff on Trusts, 10th ed by Albert H Oosterhoff, Robert Chambers, and Mitchell McInnes (Toronto: Thomson Reuters, 2024) §3.3.
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Written by: Albert Oosterhoff
Posted on: April 21, 2025
Categories: Commentary, WEL Newsletter
1. Introduction
Three years ago, I wrote a blog on two Privy Council cases, Equity Trust (Jersey) Ltd. v Halabi and ITG Ltd v Fort Trustees Ltd.[1] Although they were unrelated, the Privy Council heard them together. The first was an appeal from the Court of Appeal for Jersey; the second was an appeal from the Court of Appeal for Guernsey. However, both were governed by Jersey law. The cases raised the question whether a prior trustee has priority over a successor trustee when the prior trustee makes an indemnity claim and the trust assets are inadequate to pay the indemnity claims of both trustees. The Board held: (1) the right of indemnity confers a proprietary interest in the trust assets on the trustee; (2) the proprietary interest survives the transfer of the trust assets to a successor trustee; and (3) the trustee’s indemnity extends to the costs of proving its claim. However, (4) while the minority of the Board concluded that the first-in time principle applied to give the original trustee priority over the successor trustee, the majority held that, as a matter of justice, equity, fairness, and common sense, the pari passu rule should be applied rather than the first-in-time rule.
The matter arose again in the recent High Court of Australia case, Naaman v Jaken Properties Australia Pty Limited.[2] However, in this case the issue was somewhat different, namely, whether a successor trustee owes a fiduciary obligation to a former trustee not to deal with the trust assets so as intentionally to destroy, diminish, or jeopardise the former trustee’s entitlement to indemnification out of the trust assets or the commensurate beneficial interest that the former trustee has in the trust assets. The majority of the court held that the successor trustee does not owe such a fiduciary obligation; the minority held that it does. For ease of reference, I include paragraph numbers from the case when quoting from specific passages.
For clarity’s sake I want to mention that while we usually refer to the trustee’s right to be indemnified out of trust assets for costs and expenses incurred by it, the right is actually better described as a two-fold right. First, if the trustee, which is after all personally liable for debts and liabilities it incurs, has paid or satisfied these itself, it is entitled to recoup the amounts (assuming that they were reasonably incurred) from the trust assets. Second, if the trustee has not paid the debts or liabilities, it is entitled to be exonerated for them and may apply trust assets to discharge the debts or liabilities. The two-fold right is recognised in the reasons of the majority and he minority.
2. Facts
Jaken Property Group Pty Ltd (‘JPG’) is the first trustee of the trust in question. The first respondent, Jaken Properties Australia Pty Ltd (‘Jaken’) is the successor trustee. The second respondent was the sole director of JPG until 2006, as well as a major beneficiary under the trust. The other respondents were persons and companies that were involved in Jaken’s dealings with the trust property. The appellant, Naaman, is a judgment creditor of the former trustee.
The primary judge found [61] that Naaman ‘is entitled by way of subrogation in equity to the rights of JPG to be indemnified out of the assets of the’ trust and that JPG’s right of indemnity extended to the judgment debt owed to Naaman. The primary judge also found [62] that Jaken ‘engaged in a dishonest and fraudulent design to strip itself of assets that might otherwise be available to satisfy JPG’s power of indemnity to which Naaman was subrogated’ and that the other respondents knowingly assisted in the dishonest and fraudulent design.[3] His Honour held that a successor trustee owns a former trustee a fiduciary obligation not to deal with the trust assets so as to destroy, diminish or jeopardise the former trustee’s entitlement to indemnification.
The majority of the Court of Appeal of the Supreme Court of New South Wales held that a successor trustee does not owe a former trustee such a fiduciary obligation, so the court allowed the appeal.[4]
Naaman appealed to the High Court, which dismissed the appeal by a majority.
3. Reasons of the Majority
Gageler CJ, Gleeson, Jagot, and Beech-Jones JJ constituted the majority. As already mentioned, the majority held, ‘a successor trustee does not owe a fiduciary obligation to a former trustee in respect of the entitlement of the former trustee to indemnification out of the trust assets or the commensurate beneficial interest that the former trustee has in the trust assets’. [6] This meant that the basis of the primary judge’s holding that the other respondents knowingly assisted in the first respondent’s dishonest and fraudulent design is removed. [11]
Based on established authority, the majority confirmed, ‘The interest which a trustee has in the trust assets that is commensurate with the entitlement of the trustee to be indemnified out of the trust assets for expenses and liabilities properly incurred in the execution of the trust’ is ‘properly characterized as a beneficial interest in the trust assets which takes priority over the beneficial interest that the cestuis que trust have in the trust assets’. [13]
However, by reference to Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq),[5] the majority pointed out that the difference is not solely a matter of priority. Both are indeed equitable proprietary interests, but they are different. The right of a trustee to be indemnified was formerly called a ‘lien’ or an ‘equitable charge’[6] that a court of equity can enforce, if necessary, by ordering a sale of the property and payment of the debt out of the proceeds. It is directed against the property. In contrast, the equitable relief available to a cestui que trust is not against the property but against the holder of the property (i.e., the trustee) and serves to ensure performance of the trust. This means ‘that the trustee holds the trust property for the cestuis que trust but subject to the interest of the former trustee’. [19]. As the Privy Council explained in Halabi,[7] (1) the trustee’s entitlement does not create a personal liability in anyone to indemnify the trustee; it is instead simply a right to have the trust property applied to pay the amount owed; and (2) the remedy to enforce the right is an order that the trust property be applied to pay the amount owed. [24, 25]
This means that the interest that a former trustee retains in the trust assets, whether described as a lien, charge, or a proprietary interest, enables the trustee to obtain the assistance of a court of equity to enforce its entitlement to have the trust assets applied to recoup its expenditure or to exonerate it from liability. And the court can then make an order requiring a sale of the trust assets and paying the amount owing to the former trustee. [27]
Until the court makes such an order, on the application of the former trustee, ‘a court of equity has ample power to … protect the equitable proprietary interest of the former trustee from being destroyed, diminished, or jeopardized by the conduct of the successor trustee’. [28] It can do so on the application of the former trustee. And therefore, it is up to the former trustee to take action to protect its interest.
In consequence, it was unnecessary to consider whether the successor trustee owed any obligation to the former trustee for a court of equity to be able to protect the former trustee’s entitlement from being affected adversely by any conduct of the successor trustee. This meant also that it was unnecessary to consider whether the label ‘fiduciary obligation’, should be applied. In the opinion of the majority, ‘a fiduciary obligation cannot exist other than as an incident of a fiduciary relationship of “absolute and disinterested loyalty” within the scope of which one party, the fiduciary, is recognized in equity as having a responsibility to act in the interests of the other party (or in their shared interests) to the exclusion of the fiduciary’s own interests’. [31]
The majority was of opinion that a fiduciary relationship should not be recognized in this novel setting [32] and pointed out that Australian authority has ‘cautioned against a tendency “too readily to classify as fiduciary in nature relationships which might better be seen as purely contractual or giving rise to tortious liability”’.[8] Therefore, the majority rejected the appellant’s argument that a fiduciary relationship between a successor and a former trustee should be superimposed on the entitlement to indemnification, simply because the successor trustee holds the trust assets subject to the former trustee’s beneficial interest and knows that the former trustee is entitled to be indemnified. [35] As Leeming JA stated in the judgment of the Court of Appeal:[9]
Many persons have equitable proprietary rights in the property of others, in circumstances where no fiduciary obligation is owed to them. Every equitable mortgagee, every equitable chargee, every unpaid solicitor with an interest in a judgment or compromise and every unpaid vendor with a lien enjoys rights which are properly regarded as proprietary, and those mortgagors, chargors, clients, and purchasers are susceptible to equitable relief commensurate with those rights. But fiduciary obligations are not owed by the mortgagors, chargors, clients or purchasers to the persons with equitable proprietary rights, and that is so even though to an extent they may be vulnerable to conduct which might defeat their equitable rights.
Nor does characterizing the equitable property as a beneficial interest turn the relationship between the parties into a fiduciary relationship. [37]
In this case, ‘the legal owner of the property, the successor trustee, holds trust property for the cestuis que trust in circumstances where that property is subject to the interest of the former trustee…. A successor trustee holding trust assets subject to the beneficial interest of a former trustee not only has its own entitlement to indemnification and commensurate beneficial interest in the trust assets but has an ongoing duty to deal with the trust assets in the performance of the trust’. [40]
While a successor trustee may deal with trust assets in a manner that affects the former trustee’s right to indemnification adversely, this does not make the former trustee vulnerable in a way that might attract a fiduciary obligation. It is simply the consequence of having trust assets transferred from one person to another. Vulnerability would only be relevant if the supposed fiduciary had a responsibility to act solely in the interests of the vulnerable party to the complete exclusion of its own interests, and that is not the case here. [42, 43]
Consequently, the majority held that Jaken was not in a fiduciary relationship with JPK and owed no fiduciary duties to it.
4. Reasons of the Minority
Gordon, Edelman, and Steward JJ, constituted the minority. The minority took the view that the successor trustee is under an obligation not to destroy, diminish or jeopardize the former trustee’s entitlement to be indemnified from the trust estate. The relationship between the two ‘is one by which the successor trustee assumes a responsibility to the former trustee as would reasonably entitle the former trustee to expect that that the successor trustee will act in relation to the trust assets in the interests of the former trustee to the exclusion of its own or a third party’s interest’. Thus, it is a relationship that attracts the duty of loyalty or the conflict principle that ‘is the irreducible core of the fiduciary obligation’ [54]
The minority relied on the unchallenged findings of the primary judge, inter alia, that the successor trustee defrauded creditors of the trust, including the former trustee, by transferring trust assets to others, which assets might otherwise be available to satisfy the former trustee’s right to indemnity. [56, 62]
The minority made the following observation about the relationship between the parties:
In this appeal, it is sufficient to say that a person will be in a fiduciary relationship with another when and insofar as that person has undertaken loyalty in the sense of undertaking to perform a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that they will act in that other’s interest to the exclusion of their own or a third party’s interest. [77]
and
The relationships that are, without more, generally recognized as fiduciary are therefore those where an undertaking of loyalty is “inherent in the position” of the fiduciary. [78]
The minority then lists a number of clearly recognized fiduciary relationships. But with respect, even though it is recognized that the categories of fiduciary relationship are not closed, it is a significant, and in my view an unwarranted leap to treat a successor trustee as a fiduciary toward a prior trustee. The danger in doing so is that if opens the floodgates and potentially makes all kinds of relationships into fiduciary ones. Canadian courts have, with reason in my opinion, been criticized in the past (often by Australian judges and lawyers) for doing exactly that,[10] and in my view the approach of the minority does so as well. By treating a successor trustee as a fiduciary is to cast upon it the well-known duties not to profit from the position and to avoid conflict between their duties and their own interests. In my opinion it is illegitimate to do that merely for the reasons adduced by the minority.
The minority is correct to say the description of the right of indemnity as a security interest in the nature of a lien or an equitable charge is inaccurate because a successor trustee does not owe a debt to a former trustee. The minority is also correct in stating that it is a fundamental error to treat a trust as a legal person that has the capacity to owe debts. [88] A trust is not a person and therefore cannot owe debts. Nor, for that matter, can it own any assets. Only the trustee can incur debts and hold title to assets.
The minority then goes on to equate the proprietary interest of a former trustee with that of the beneficiaries of the trust. [90] Yes, both have a beneficial interest in the trust assets but, as explained by the majority, the interests are different. The interest of a trustee to be indemnified (a proprietary interest) is directed against the trust property, and a court can enforce it by ordering a sale of the property and directing payment of the amount owed out of the proceeds. However, the rights of beneficiaries are not against the property but against the trustee. [19]
The minority is right to say that the issue in the case must be decided ‘by recognizing, first, that the former trustee in this case had an existing right of exoneration out of the trust property (not merely a contingent right) which gave rise to equitable proprietary rights in relation to the trust estate and, second, that the successor trustee was bound to prioritise that right over the claims of the beneficiaries of the trust. But in my opinion, while the successor trustee is in a fiduciary relationship with the beneficiaries of the trust, it does not follow that it is ‘also in a fiduciary relationship with a former trustee where the circumstances make apparent that the former trustee has a right of exoneration from the trust assets’. [94] And therefore, I believe that the ratio adduced by the minority, ‘where a person has undertaken to perform a function for, or has assumed a responsibility to, another as would thereby reasonably entitle that other to expect that they will act in that other’s interest to the exclusion of their own or a third person’s interest, such a relationship may be fiduciary’, is incorrect. So is the conclusion the minority draws that ‘the nature and contents of the rights [of beneficiaries and of former trustees as regards their right to be indemnified] in substance are the same’. [95] The majority has adequately refuted that opinion in my view.
I do want to underline that the minority does recognize that the fiduciary obligation it promotes arises only if the successor trustee acts intentionally so as to defeat the interest of the former trustee in the trust property. It should not arise if the prejudice to the former trustee’s interest is caused accidentally. [98, 101]
—
[1] [2022] UKPC 36, [2023] AC 877. See “Trustee’s Right of Indemnity” https://welpartners.com/blog/2022/12/trustees-right-of-indemnity/, posted 1 December 2022.
[2] [2025] HCA 1. I am indebted to Joel Nitikman for drawing my attention to this case.
[3] See Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517. By the way, ‘Pty’ is an abbreviation of ‘Proprietary’. It is used in Australia, South Africa, and New Zealand to indicate that the corporation is a private corporation.
[4] Jaken Properties Australia Pty Ltd v Naaman (2023) 112 NSWWLR 318.
[5] (2000) 202 CLR 588.
[6] The Privy Council disapproved of these terms in Halabi, footnote 1 supra and preferred the simple term ‘proprietary interest’ instead.
[7] Ibid.
[8] Maguire v Makaronis (1997) 188 CLR 449 at 474.
[9] Footnote 4, supra, p 331.
[10] For examples see Oosterhoff on Trusts, 10th ed by Albert H Oosterhoff, Robert Chambers, and Mitchell McInnes (Toronto: Thomson Reuters, 2024) §3.3.
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