Snapshot
- A recent High Court decision has confirmed a successor trustee does not owe a fiduciary obligation to its predecessor trustee to not deal with trust assets in a manner which prejudices the predecessor’s right of indemnity. The issue was decided by a narrow 4:3 majority, reflecting the 2:1 split in the New South Wales Court of Appeal.
- The decision touches on fundamental principles concerning the law of trusts and fiduciary relationships, and raises interesting questions regarding the adequacy of the remedies available to a former trustee.
- This article discusses the reasoning in the competing judgments and comments on the implications for practitioners.
Practitioners familiar with the law of trusts will be well-acquainted with the trustee’s right of indemnity: a right to be indemnified out of trust assets for expenses and liabilities properly incurred in the execution of the trust. The trustee has an equitable interest in the trust assets commensurate with its right of indemnity which takes priority over the interests of the beneficiaries of the trust. The equitable interest survives the trustee’s removal from office. The consequence is a former trustee – or its creditors, by subrogation – can recover from trust assets which are no longer legally held by the trustee.
This analysis hinges on the interest a former trustee has in the trust assets. But what can be said of the relationship between the former trustee and their successor? Is the relationship fiduciary in nature? Put differently, does the successor trustee have a fiduciary obligation not to deal with the trust assets in a manner which jeopardises the former trustee’s entitlement to be indemnified? These were the issues before the High Court in Naaman v Jaken Properties Australia Pty Ltd [2025] HCA 1. This article discusses the case, the competing views expressed by a narrowly divided High Court and the takeaways for practitioners.
