Jaken Properties Australia Pty Ltd v Naaman

[2023] NSWCA 214

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Jaken Properties Australia Pty Ltd v Naaman [2023] NSWCA 214

Hearing dates:

6 – 7 February 2023

Decision date:

08 September 2023

Before:

Bell CJ at [1];
Leeming JA at [35];
Kirk JA at [228]

Decision:

1. Grant leave to appeal.

2. Appeal allowed in part.

3. Set aside the answers to questions 1-4, 5(c) and (d), 6(b) and (c), 7, 8, 12, 14, 16(c) and (d), 17(b) and (c), 18, 19, 28(c) and (d), 29(b) and (c), 30, 31, 32, 33, 34, 35, 36, 37.

4. Set aside orders 1(b)-19 and 21 made on 1 July 2022.

5. Direct the parties to file and serve, within 14 days of today, an agreed form of answers to the questions, any order as to the costs of the appeal, and any other orders which this Court should make, or in default of agreement, the parties to file and serve within 14 days of today the answers and orders for which they contend accompanied by submissions not exceeding ten pages in support, and to file any submissions in response not exceeding five pages within 7 days thereafter, with a view to this Court resolving all outstanding issues on the papers.

Catchwords:

EQUITY – fiduciary duty – whether fiduciary duty owed by successor trustee to former trustee – nature of former trustee’s entitlement to trust property to be indemnified for expenses properly incurred – whether former trustee vulnerable to exercise of power by successor trustee – whether former trustee only entitled to appointment of receiver and judicial sale and interlocutory relief – whether analogy with duty owed by mortgagee with surplus after exercising power of sale – Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd [2005] SASC 117 considered – whether property transferred to third parties in breach of asset preservation order – whether property transferred to third parties to defraud creditors

Legislation Cited:

Conveyancing Act 1919 (NSW), s 37A

Corporations Act 2001 (Cth), s 500(2)

Supreme Court Act 1970 (NSW), ss 101(2), 103

Trustee Act 1925 (NSW), s 63

UCPR, rr 28.2, 36.16

Cases Cited:

Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26

Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109; [2004] HCA 7

All Benefit Pty Ltd (in liq) v Registrar-General (1993) 11 ACSR 578

Ancient Order of Foresters inVictoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43

Atkinson v Pengelly [1995] 3 NZLR 104

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63

Barnes v Addy (1874) LR 9 Ch App 244

Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24

Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44

Brambles Security Services Ltd v Bi-Lo Pty Ltd [1992] Aust Tort Rep 81-161; (Court of Appeal (NSW), 19 June 1992)

Breen v Williams (1996) 186 CLR 71; [1996] HCA 57

Brown Brothers Waste Contractors Pty Ltd v Pittwater Council (2015) 90 NSWLR 717; [2015] NSWCA 215

Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation (2009) 239 CLR 346; [2009] HCA 32

Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 3) (2016) 92 NSWLR 457; [2016] NSWSC 1452

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18

Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524; [2019] HCA 20

Charles v Jones (1887) 35 Ch D 544

Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4

CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; [2005] HCA 53

C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd & Anor (1996) 37 IPR 315; [1996] FCA 1079

CSR Ltd v Eddy (2005) 226 CLR 1; [2005] HCA 64

Davis v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 10

Dodds v Tuke (1884) 25 ChD 617

Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36

Frame v Smith [1987] 2 SCR 99; (1987) 42 DLR (4th) 81

Grogan v Orr [2001] NSWCA 114

Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; [2003] NSWCA 10

Hewett v Court (1983) 149 CLR 639; [1983] HCA 7

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21

In re Hallett's Estate (1880) 13 Ch D 696

Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517

Jaken Properties Australia Pty Ltd v Naaman [2023] NSWSC 268

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19

Johnson v Buttress (1936) 56 CLR 113; [1936] HCA 41

Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576

Kirkham v Peel (1880) 43 LT 171

LAC Minerals v International Corona Resources [1989] 2 SCR 574; (1989) 61 DLR (4th) 14

Lee v Lee (2019) 266 CLR 129; [2019] HCA 28

Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35

Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344

Leung v Fordyce [2019] NSWSC 18

Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32

McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623

Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas [2023] FCAFC 93

Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78

Naaman v Sleiman [2014] NSWSC 1869

Naaman v Sleiman [2015] NSWCA 259

Norberg v Wynrib [1992] 2 SCR 226; (1992) 92 DLR (4th) 449

Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61

Ramage v Waclaw (1988) 12 NSWLR 84

Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866

Re Wadsworth (1886) 34 Ch D 155

Re Wakim: ex parte McNally (1999) 198 CLR 511; [1999] HCA 27

Reading v The King [1949] 2 KB 232

Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25

Roam Australia Pty Ltd v Telstra Corp Ltd t/as Telecom Australia [1997] FCA 980

Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd; Carelli v FS Architects Pty Ltd [2008] NSWCA 39

Ron Kingham Real Estate Pty Ltd v Edgar [1999] 2 Qd R 439

Ronori Pty Ltd v ACN 101 071 998 Pty Ltd [2008] NSWSC 246

Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50

Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd [2005] SASC 117

Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd (No 2) [2002] SASC 390

Rothmore Farms Pty Ltd (in prov liq) v Belgravia Pty Ltd [1999] FCA 745

Standard Chartered Bank v Antico (Nos 1 and 2) (1995) 38 NSWLR 290

Thynne v Sheringham [2023] NSWCA 181

Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319; [1945] HCA 37

Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16

Yard v Yardoo Pty Ltd & Ors; Yard & Ors v Yard [2007] VSCA 35

Texts Cited:

JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis, 5th Edition, 2015)

L Smith “Prescriptive Fiduciary Duties” (2018) 37(2) University of Queensland Law Journal 261

N Palmer, Palmer on Bailment (3rd ed, Thomson Reuters, 2009)

PD Finn, “The Fiduciary Principle” in TG Youdan, Equity, Fiduciaries and Trusts (Carswell, 1989)

PD Finn, Fiduciary Obligations (Federation Press, 2016)

Sykes & Walker, The Law of Securities (5th ed, 1993, Lawbook Co)

Category:

Principal judgment

Parties:

Jaken Properties Australia Pty Ltd as trustee for the Sly Fox Family Trust (First Appellant)
Peter Sleiman (Second Appellant)
Tony Sleiman (Third Appellant)
Superior Family Investments Pty Ltd (Fourth Appellant)
O’Malley’s Hotel Pty Ltd (Fifth Appellant)
PSJK Holdings Pty Ltd (Sixth Appellant)
Powerhouse Corporation Pty Ltd (Seventh Appellant)
Anthony Naaman (Respondent)

Representation:

Counsel:
J C Kelly SC with A Maroya (Appellants)
P Afshar (Respondent)

Solicitors:
Jeresyn Legal (Appellants)
KB Legals Pty Ltd (Respondent)

File Number(s):

2022/219923

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Real Property List

Citation:

Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517

Date of Decision:

29 April 2022

Before:

Kunc J

File Number(s):

2019/24203

HEADNOTE

[This headnote is not to be read as part of the judgment]

The first appellant, Jaken Properties Australia Pty Ltd (Jaken), is the trustee of the Sly Fox Family Trust. Jaken replaced the former trustee, Jaken Property Group Pty Ltd (JPG). The second to seventh appellants are persons and companies associated with Jaken. The respondent, Mr Anthony Naaman, is a judgment creditor of JPG in the amount of $3,446,755.55. There was no dispute that he was subrogated to the rights of JPG to be indemnified out of trust assets for liabilities incurred by it, including the judgment debt.

It is likely that there will be insufficient trust assets to satisfy Mr Naaman’s judgment debt. Mr Naaman claimed that Jaken had transferred trust assets to other parties in breach of a fiduciary duty owed by Jaken to JPG, in breach of certain asset preservation orders, and in order to defraud creditors. The primary judge answered numerous questions concerning the transfers of the assets, including whether they had been transferred in breach of fiduciary duty, whether other appellants had knowingly received or assisted in the transfers, whether the transfers had been contrary to a court order preventing any further encumbering or diminishing the value of the certain property, or for the purpose of defrauding creditors. Most were answered unfavourably to the appellants. The primary judge contemplated there being a further hearing to determine the parties’ entitlement. The National Australia Bank, which was a secured lender to Jaken and had security over some of the assets held by other appellants, was not a party to these proceedings. After the primary judge reserved, the bank appointed a receiver to one of the trust properties.

There were two main issues on appeal. First, does a successor trustee owe a fiduciary obligation to a former trustee not to deal with trust assets so as to destroy, diminish or jeopardise the former trustee’s entitlement to be indemnified from those assets, such that third parties who received trust assets or who assisted in their transfer are liable pursuant to the principles in Barnes v Addy. Secondly, did the primary judge err in relation to factual findings made in respect of the trust assets, properties and business in Kings Cross, Granville and Victoria, as well as bank transactions described as the “$3.6 Million Drawdown”.

The Court granted leave to appeal and allowed the appeal in part.

In respect of the first issue:

Per Leeming and Kirk JJA, Bell CJ dissenting:

1. The successor trustee did not owe the former trustee a fiduciary obligation, either at the time it was appointed, or from the time it learnt of the former trustee’s claim to be indemnified out of trust assets, or at any other time: per Leeming JA at [115]-[141]; per Kirk JA at [228]-[237]; Bell CJ contra at [3]-[33].

Consideration by Bell CJ of the nature of the former trustee’s entitlement to trust assets, the nature of fiduciary obligations and the circumstances when they are imposed, the significance of vulnerability, the analogies with a bailee and a mortgagee with a surplus after exercise of a power of sale, the analogy of a bailor, and the relationship between the obligation owed to a former trustee and to current beneficiaries.

Consideration by Leeming JA of remedies available to a former trustee, the nature of a former trustee’s entitlement to trust property, the variety of relationships conferring property rights which do not give rise to fiduciary obligations, the significance of the absence of decisions upholding a fiduciary duty.

Consideration by Kirk JA of the role of vulnerability, the difficulty in a duty which arises on receipt of a realistic claim, and the relationship between the posited duty owed to a former trustee and the duty owed to beneficiaries.

Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 3) [2016] NSWSC 1452; Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524; [2019] HCA 20; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4; Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344; Masri v Consolidated Contractors International Company SAL [2009] QB 450; [2008] EWCA Civ 303; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61, considered.

In respect of the second issue:

Per curiam:

1. There was no error in the findings that the Granville Land and the Victorian Properties had been transferred in order to defraud creditors: at [146]-[160].

2. The “$3.6 Million Drawdown” did not contravene the asset preservation order, because there was no further encumbering or diminishing the value of the property over which security had already been given when Jaken increased its indebtedness and another company reduced its indebtedness: at [193]-[205].

3. No finding that the transactions comprising the “$3.6 Million Drawdown” was void by reason of s 37A of the Conveyancing Act should be made in proceedings to which the bank was not a party: at [217].

Judgment

1. BELL CJ: The principal question raised by this appeal, namely whether a successor trustee owes a fiduciary obligation to a predecessor trustee in respect of the latter’s right to be indemnified or exonerated out of trust assets, is important because on its resolution turns the ability of the respondent in the present case, standing in the shoes of the predecessor trustee, to engage the principles in Barnes v Addy (1874) LR 9 Ch App 244 to secure equitable compensation from third parties who were held to have knowingly assisted in a successor trustee’s breach of what the primary judge accepted was a fiduciary obligation owed to its predecessor: Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517.

2. The detailed facts giving rise to this question are set out in considerable detail and with great clarity in the judgment of Leeming JA which I have had the benefit of reading and which do not need to be repeated. His Honour has reached the conclusion (as has Kirk JA) that the successor trustee of the Sly Fox Family Trust, Jaken Properties Australia Pty Ltd (Jaken), did not owe a fiduciary obligation to its predecessor, Jaken Property Group Pty Ltd (JPG) not to deal with trust assets so as to prejudice JPG’s right of indemnity from those assets in respect of expenses or liabilities properly incurred by it in its former capacity as trustee of the trust. As I understand Leeming JA’s judgment, while his Honour fully accepts that a duty of the kind described was owed, he does not consider that it was fiduciary in character: see below at [38].

3. I have reached the opposite conclusion and agree with the primary judge’s view that a fiduciary obligation was owed and breached, with consequences for third parties who the primary judge held had knowingly assisted in a dishonest and fraudulent breach of that duty. My conclusion does not depend in any way on the fact that, because equity would grant certain relief on the application of a former trustee against a successor trustee, the latter owes a fiduciary obligation to the former. I am also conscious of the observation of Sopinka J in Norberg v Wynrib [1992] 2 SCR 226 at 321; (1992) 92 DLR (4th) 449 at 481, cited with approval by Gaudron and McHugh JJ in Breen v Williams (1996) 186 CLR 71 at 110; [1996] HCA 57 (Breen), that “[f]iduciary duties should not be superimposed on these common law duties simply to improve the nature or extent of the remedy.”

4. Underlying what I have described as the principal question in the present appeal are a number of well-established propositions. These are that:

• a trustee has a right to be indemnified or exonerated out of trust assets for expenses and liabilities properly incurred in the course of the trusteeship: Carter Holt Harvey Woodproducts Australia Pty Limited v The Commonwealth of Australia (2019) 268 CLR 524; [2019] HCA 20 (Carter Holt) at [29];

• that right comprises an equitable proprietary interest in the trust estate: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 370; [1979] HCA 61 (Octavo); Carter Holt at [32]. This interest has been described as “the trustee’s beneficial interest in the trust estate”: Octavo at 371;

• it is an interest that survives the trustee’s retirement (Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866 at [40] ff and the cases there cited) and insolvency, with trust creditors of an insolvent former trustee being able to enforce the power of exoneration by subrogation to the former trustee’s rights: Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 335; [1945] HCA 37 (Vacuum Oil); Octavo at 367, 370;

• the interest has been said to comprise or be in the nature of a ‘charge or lien’ which “arises endogenously as an incident of the office of trustee in respect of the trust assets”: Carter Holt at [83], see also at [32];

• the former trustee’s interest is a “beneficial interest in” the trust’s assets: Carter Holt at [80]-[84], [133]-[142]; see also Octavo at 371; Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation (2009) 239 CLR 346; [2009] HCA 32 (Bruton) at [43];

• it is an interest that takes priority over the interests of beneficiaries of the trust including their right to call in the trust assets in accordance with the rule in Saunders v Vautier: see Vacuum Oil at 335; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 (Buckle) at [47]-[48], citing Dodds v Tuke (1884) 25 ChD 617 at 619; Carter Holt at [83]; see also Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 at 587;

• equity will grant relief to protect a former trustee to ensure that its successor does not take steps which will destroy, diminish or jeopardise the former trustee's right of security (to be fully exonerated), which subsists in the trust assets after their transfer to the new trustee: Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 (Lemery) at [50].

5. In Buckle, it was said by a unanimous High Court, citing Octavo at 370, that:

“[t]o the extent that the assets held by the trustee are subject to their application to reimburse or exonerate the trustee, they are not "trust assets" or "trust property" in the sense that they are held solely upon trusts imposing fiduciary duties which bind the trustee in favour of the beneficiaries”: at [48] (emphasis added).

The context of this statement and what followed it emphasised the superiority of the right of the former trustee in relation to its exoneration or reimbursement over the rights of ordinary beneficiaries. To my understanding, their Honours did not mean that the successor trustee did not continue to hold the corpus of the trust assets on trust for those who had equitable interests in them, but rather were at pains to point out that there was an order of priority as between a former trustee and the beneficiaries.

6. As explained further below, it would in my opinion be quite anomalous for this special and superior right and interest in the trust assets enjoyed by the former trustee not to attract fiduciary obligations binding the successor trustee in circumstances where the lesser and subordinated or inferior rights of the ordinary beneficiaries do attract fiduciary obligations (and consequent protection) owed by the incumbent successor trustee.

7. True it is that a former trustee will have the assistance of equity to enforce its right in the same way as any equitable charge (Buckle at [50]; Hewett v Court (1983) 149 CLR 639 at 663; [1983] HCA 7). That does not mean, however, that the value of its right to exoneration, indemnity or recoupment may not be diminished or even destroyed by a successor trustee who is fully in control of the assets from which indemnity or recoupment will be sourced. The case for that trustee, with custody of the trust property, to be subject to a fiduciary obligation vis-à-vis its predecessor, is strong.

6. To the well-established propositions noted in [4] above may be added the following propositions which go to the question of when a fiduciary duty or obligation will be recognised or imposed. They are that:

• the categories of fiduciary duty are not closed: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96; [1984] HCA 64 (Hospital Products);

• various relationships have been recognised as giving rise to fiduciary duties including trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company and partners: Hospital Products at 96; Breen at 92, 107. As Professor Finn observed, these are sometimes described as relationships which are “fiduciary per se”: PD Finn, “The Fiduciary Principle” in TG Youdan, Equity, Fiduciaries and Trusts (Carswell, 1989) at 32 (Finn);

• other relationships may not give rise to fiduciary obligations in any general sense but aspects of a particular relationship may do so. Thus, a person may stand in a fiduciary relationship to another for one purpose but not for others: Hospital Products at 98; Breen at 108. See also Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44 (Bofinger) where a mortgagee who sold the mortgaged property was held to become subject to a fiduciary obligation to those entitled to surplus proceeds after its debt was paid;

• as such, it has been said that the finding that a legal relationship in itself is not fiduciary in whole or in part by no means concludes the fiduciary question: Finn at 40.

• attention should be paid to the subject matter over which it is contended that fiduciary obligations extend: Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 409; [1929] HCA 24.

• various circumstances may point to the existence of a fiduciary duty or obligation without being determinative of the issue. Gaudron and McHugh JJ identified some such circumstances in Breen at 107 as including:

○   the existence of a relation of confidence: Hospital Products at 69;

○   inequality of bargaining power: Hospital Products at 69-70;

○   an undertaking by one party to perform a task or fulfil a duty in the interests of another party: Hospital Products at 96-97; Reading v The King [1949] 2 KB 232 at 236;

○   the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another: Frame v Smith [1987] 2 SCR 99; (1987) 42 DLR (4th) 81 cited in LAC Minerals v International Corona Resources [1989] 2 SCR 574; (1989) 61 DLR (4th) 14 at 62-63; and

○   a dependency or vulnerability on the part of one party that causes that party to rely on another: Johnson v Buttress (1936) 56 CLR 113 at 134-135; [1936] HCA 41 (Johnson).

9. In Breen at 82, Brennan CJ made the following valuable observations in relation to fiduciary duty (footnotes omitted):

“Fiduciary duties arise from either of two sources, which may be distinguished one from the other but which frequently overlap. One source is agency; the other is a relationship of ascendancy or influence by one party over another, or dependence or trust on the part of that other. Whichever be the source of the duty, it is necessary to identify “the subject matter over which the fiduciary obligations extend”. It is erroneous to regard the duty owed by a fiduciary to his beneficiary as attaching to every aspect of the fiduciary's conduct, however irrelevant that conduct may be to the agency or relationship that is the source of fiduciary duty. As Fletcher Moulton LJ pointed out in In re Coomber; Coomber v Coomber, fiduciary relations are of many different types and where there is a fiduciary relation the court may interfere and set aside acts which, between persons in a wholly independent position, would have been perfectly valid. His Lordship then added:

"Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it. They conclude that every kind of fiduciary relation justifies every kind of interference. Of course that is absurd. The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case, when one reads the judgment of the Court on those facts, than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them."

As Mason J said in Hospital Products Ltd v United States Surgical Corporation:

"it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case."

In the same case, Gibbs CJ said:

“Fiduciary relations are of different types, carrying different obligations ... and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose.””

10. In his judgment in Breen, Gummow J observed at 137 that “[f]iduciary obligations arise (albeit perhaps not exclusively) in various situations where it may be seen that one person is under an obligation to act in the interests of another.”

11. In Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [32], French CJ and Keane J said (omitting footnotes):

“The protective rationale for the proscriptive duties attaching to a fiduciary's powers was explained by Mason J in Hospital Products Ltd v United States Surgical Corporation, and quoted with approval in Pilmer v Duke Group Ltd (in liq):

“It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed”.”

12. Professor Paul Finn, before his eminent career as a judge of the Federal Court, was the leading Australian scholar on the fiduciary principle: see, for example, Paul Finn, Fiduciary Obligations (Federation Press, 2016) and Finn above. Professor Finn identified the concern of fiduciary law as being to impose standards of acceptable conduct on one party to a relationship for the benefit of the other, where the one has a responsibility for the preservation of the other’s interests: Finn at 2. As such, the fiduciary standard enjoins the fiduciary to act in the interests of the other party selflessly and with undivided loyalty: Finn at 4. Its function is not to mediate between interests but to secure the paramountcy of one side’s interests: Finn at 27. The fiduciary principle, the Professor observed (at 26):

“has been used, and is demonstrably used, to maintain the integrity, credibility, and utility of relationships perceived to be of importance in a society. And it is used to protect interests, both personal and economic, which a society is perceived to deem valuable.”

13. Professor Finn’s conception was that what must be shown for a relationship to be characterised as giving rise to a fiduciary obligation is that (at 46):

“the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement.”

See also Finn at 54.

14. As has been explained by Leeming JA ([102]-[107] below), in Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd [2005] SASC 117 (Rothmore), it was held in not dissimilar circumstances to the present case that when the successor trustee was substituted as trustee and thereby acquired legal ownership of the trust assets, it became a fiduciary vis-a-vis its predecessor and was obliged not to act with respect to the assets of the trust in a way which jeopardised the predecessor trustee’s right of indemnity and its lien over the trust assets. The obligation assumed that the former trustee’s right and claim to indemnity was known to the successor trustee.

15. This decision was followed by the primary judge in the present case in holding that the successor trustee, Jaken, owed a fiduciary obligation to its predecessor, JPG, which was breached when Jaken, knowing of JPG’s unsatisfied right of exoneration, disposed of trust assets to third parties leaving insufficient trust property from which the Respondent, Mr Naaman, who was subrogated to JPG’s right of indemnity or exoneration (as explained in Leeming JA’s reasons), could be fully indemnified.

16. Leeming JA has demonstrated that the characterisation of the relationship between current and former trustees as fiduciary in Rothmore was not the subject of extensive reasoning and may have in fact represented an agreed or assumed position by the parties in that case which the judge (Perry J) was content to accept. So much may be accepted and, to that extent, the authority of the decision may be diminished. It does not follow, however, that this characterisation was erroneous.

17. Whilst vulnerability is not “the touchstone of fiduciary obligation” (C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd & Anor (1996) 37 IPR 315 at 336; [1996] FCA 1079 (C-Shirt); see also John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [83]), that is not to say it is not a relevant factor in the determination of the question as to whether or not a person in one position owes a fiduciary duty to another, especially when it is coupled with other features which have been held to attract the characterisation of a relationship (or an aspect of a relationship) as fiduciary: see Johnson at 134-135, cited by Gaudron and McHugh JJ in Breen at 107. As Lehane J observed in C-Shirt, vulnerability may be a characteristic of some of those to whom fiduciary duties are owed: at 336.

18. While it may be accepted that the factual circumstances of Johnson were far removed from those of the present case, Dixon J said that “whenever one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or a dependence or trust on his part”, “one occupying such a position falls under a duty in which fiduciary characteristics may be seen”: at 134-135. In Hospital Products, Mason J spoke of vulnerability in the sense of a person being vulnerable to abuse by a person who, by virtue of their relationship, is in a position to exercise powers or discretions to the detriment of the other person: at 97. Such a vulnerability existed on the facts of the present case.

19. In Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 at [144], Campbell JA, describing the fiduciary obligation confirmed in Bofinger to which a mortgagee who holds surplus proceeds of sale is subject, namely not to prejudice the interests of subsequent interest holders in the surplus by reason of the manner in which the mortgagee disposes of it, said as follows:

“Though the existence of this fiduciary obligation on a mortgagee is clearly established by authority, its basis in principle is not hard to find. The selling mortgagee who holds a surplus, or a subsequent mortgagee to whom the selling mortgagee hands more of the proceeds of sale than that subsequent mortgagee is entitled to, are each in the position of holding property that is not their own. That position of control of the property gives rise to a fiduciary obligation not to harm the interest of the person beneficially entitled to the property. It is analogous to the fiduciary obligation that a bailee has to the owner of the goods bailed … It is the sort of obligation that arises from holding property one knows is not one's own.”

20. If a bailee has fiduciary obligations to a bailor (which is a proposition established by high authority: Hospital Products at 101; In re Hallett's Estate (1880) 13 Ch D 696 at 708-709; Brambles Security Services Ltd v Bi-Lo Pty Ltd [1992] Aust Tort Rep 81-161; (Court of Appeal (NSW), 19 June 1992)), it is scarcely a radical step to recognise that a successor trustee is under a similar obligation when in custody of trust assets which are charged in equity with its predecessor’s valuable right to indemnity, exoneration or recoupment. That is especially so in circumstances where:

1. decisions of high authority describe the former trustee’s interest, born of its right to indemnity or exoneration, as a beneficial interest in the trust assets: see Octavo at 371; Bruton at [43];

2. that interest is one which takes priority over the interests of ordinary beneficiaries: see [4] above; and

3. the former trustee is entirely out of possession of the assets of the trust: see Lemery at [40]. As Barrett J observed in Ronori Pty Ltd v ACN 101 071 998 Pty Ltd [2008] NSWSC 246 at [15], the former trustee’s right entails “a beneficial interest in the [trust] property” and “is not in the nature of a possessory security.”

21. As explained at [6], it would anomalous if a successor trustee’s duty to those with an inferior interest in the trust property, namely the beneficiaries, should be fiduciary whilst its duty to the predecessor trustee is not. Such conceptual incoherence should be avoided. Moreover, the imposition or recognition that a fiduciary obligation arises to protect the interest of a successor trustee coheres with the importance which attaches to any trustee’s right to exoneration or indemnity out of trust assets. The existence of such a right plays a valuable societal role in encouraging the assumption of high obligations of trusteeship. Imposition of a fiduciary obligation in the context under consideration in the present case maintains “the integrity, credibility and utility of relationships perceived to be of importance in a society”, to quote Professor Finn: see [12] above.

22. In Lemery, Brereton J said that “the former trustee is entitled to ensure the new trustee does not take steps which will destroy, diminish or jeopardise the old trustee’s right of security, which subsists in the trust assets after their transfer to the new trustee”: at [50]. A retired trustee may have no visibility, however, as to its successor’s dealing with trust property which might be wholly destructive of the former trustee’s beneficial interest in the trust assets.

23. While the former trustee may approach the Court for relief including the appointment of a receiver in order to realise its right to indemnity secured by a lien over the trust property, such relief is only likely to be granted where the former trustee can demonstrate that its successor is declining to act in a way which would allow exoneration or recoupment by the former trustee, or where the former trustee has a basis for apprehending that its successor (which may be a company of little worth) is proposing to dispose of trust assets and distribute proceeds of sale to beneficiaries. But the former trustee may have no such knowledge and be wholly ignorant of its successor’s intentions, and its valuable right to indemnity may be eviscerated by a unilateral action by its successor which may be taken without any notice or warning. In the words of Mason J in Hospital Products, the former trustee is, in such circumstances, “at the mercy” of its successor which may sell trust assets and distribute the proceeds of sale without notice to the predecessor trustee, notwithstanding that the successor trustee is on notice of its predecessor’s superior claim for exoneration of indemnity. Any suggestion of protection by caveat will be limited to cases where some or all of the trust assets comprise interests in land.

24. I see no reason why equity would not give “full effect to [the former trustee’s] preferred beneficial interest”, to use the language of Barrett JA in Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 at [84], by subjecting the successor trustee to fiduciary obligations in dealing with the trust property, at least provided that it is aware of the former trustee’s bona fide claim on, and unsatisfied right to exoneration or recoupment or indemnification, from the trust assets.

25. The relevant feature of the fiduciary duty in the present case is an aspect of the duty of "absolute and disinterested loyalty": see Ancient Order of Foresters inVictoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43 at [67] (Ancient Order) and the cases there cited; see also Breen at 93 (“what the law exacts in a fiduciary relationship is loyalty, often of an uncompromising kind, but no more than that”). As expressed in Rothmore, it is a duty not to act with respect to the assets of the trust in a way which jeopardises the predecessor trustee’s right of indemnity and its lien over the trust assets. That language has an affinity with that used by Brereton J in Lemery at [50], cited in [22] above.

26. Contrary to the submissions of Mr Kelly SC, who appeared for Jaken, such a duty or obligation is not prescriptive but, classically, proscriptive: see, for example, Breen at 113; Ancient Order at [67] and, cf. Lionel Smith, “Prescriptive Fiduciary Duties” (2018) 37(2) University of Queensland Law Journal 261. It is limited in its scope, but it is no less real or important for that reason.

27. Leeming JA at [144] below has drawn attention to [18] of Brereton J’s judgment in Lemery, emphasising the emboldened words of his Honour’s judgment: “being an equitable lien, the security is enforceable by the trustee only by judicial sale or appointment of a receiver, and not by foreclosure or by sale out of Court.” That statement is unexceptional and consistent with the long line of authority cited in support of it. The purpose of his Honour’s statement was to draw a contrast between judicial sale or the appointment of a receiver, on the one hand, and foreclosure or sale out of court, on the other hand. His Honour was also speaking only of remedies against the trust assets (see at [46]) and was not addressing the availability of other remedies such as equitable compensation including against third parties, for example. I do not read Lemery as containing a statement of the outer limit of equity’s interest in protecting the former trustee’s important right of indemnity or exoneration nor as in any way precluding the characterisation of the former trustee’s relationship to its successor as “fiduciary”.

28. There is no requirement for a fiduciary duty or obligation to arise at the outset of a particular relationship. Bofinger is an illustration of that. To the extent that there was debate as to when the asserted fiduciary obligation arose in the present case, in my view it arose no later than when the successor trustee became aware of the former trustee’s claim to indemnity from the trust assets. Unlike and with great respect to Leeming JA and Kirk JA, I do not find this “decidedly odd”. An important feature of the onerous work of trustees is the trustee’s right to indemnity or exoneration from the trust estate in respect of liabilities properly incurred. That is a socially valuable right which survives a trustee’s retirement or resignation and its replacement by a successor trustee: see [21] above. The proprietary nature of that right is very well established, as is the fact that it is superior to the rights of the beneficiaries of the trust.

29. Adapting the language of Professor Finn noted at [13] above, a former trustee is entitled to expect that its successor will act in its interests in ensuring that its equitable and (as in this case) contractual right to indemnity and reinstatement is not compromised or jeopardised. That entitlement has its origins in the fact that the successor is a trustee itself and should be taken to be aware that, at least once on notice of any equitable proprietary interest in the trust estate arising from its predecessor’s right to indemnity (that is, once the claim for exoneration or indemnity is communicated), that right assumes priority over that of the beneficiaries of the trust. The former trustee would also be entitled to assume that, given appreciation of that priority, its successor would owe obligations of trust and loyalty to it at least as strong as those owed to beneficiaries whose interests were inferior in terms of priority to those of the former trustee, at least pro tanto the value of that interest. On what rational or coherent basis would the successor trustee not be held to at least the same standard of loyalty in relation to rights in the trust estate which the law recognised were entitled to a higher priority than the rights of ordinary beneficiaries of the trust? The former trustee is also vulnerable to its successor’s ability to deal with the trust assets without notice to it, and in the sense referred to by Mason J in Hospital Products: see [18] above.

21. As to the objection raised by Jaken that there may be some difficulty in reconciling the fact that a successor trustee will owe duties to the beneficiaries of the trust as well, on my preferred analysis, as to the predecessor trustee, so much is contemplated by the many decisions of the High Court that recognise that the rights of beneficiaries are subordinate to the superior (in terms of priority) rights of a predecessor trustee who has an extant right to be indemnified out of trust property. As was said in Buckle, in the passage cited at [5] above:

“[t]o the extent that the assets held by the trustee are subject to their application to reimburse or exonerate the trustee, they are not "trust assets" or "trust property" in the sense that they are held solely upon trusts imposing fiduciary duties which bind the trustee in favour of the beneficiaries.”

Any perceived difficulty of reconciling the successor trustee’s duties is answered consistently with the rule, referred to by Brereton J in Lemery at [35], that a trustee is not required to make a distribution to a beneficiary to the extent that the beneficiary has outstanding obligations to the trust. Where a trustee is in doubt as to reconciling its obligations, judicial advice may be sought under s 63 of the Trustee Act 1925 (NSW).

31. Nor do I consider that the fact that the occasions on which the fiduciary obligation with which the present case is concerned may be engaged are likely to be relatively rare – given that, generally speaking, the former trustee will be unlikely to incur further liabilities engaging its equitable right to reinstatement or exoneration after its retirement from office – supplies a reason for not characterising the successor trustee’s obligation as fiduciary: cf. [137]-[138] below. That there will be no ongoing relationship between former and successor trustee once all liabilities of the former trustee have been paid out is, with respect, quite beside the point and only serves to highlight the fact that, before that point in time is reached, the former trustee may be vulnerable to, and at the mercy of unilateral action by, its successor in the way I have earlier described. Its proprietary interest in the trust property will be in the control of its successor.

32. For completeness, I do not consider that the recent decision of the Privy Council in Equity Trust (Jersey) Ltd v Halabi (Jersey) [2022] UKPC 36 to which Leeming JA has referred advances or affects the analysis of the question.

33. An important difference in my analysis of the issues to that of Leeming and Kirk JJA is that, whereas their Honours build upon the former trustee’s interest as being in the nature of a charge or lien over the trust assets, I place more weight upon the characterisation of the former trustee’s interest as a “beneficial interest in the trust estate”, to use the language of Stephen, Mason, Aickin and Wilson JJ in Octavo at 371. That being the case, and that interest being superior to the beneficial interest of the beneficiaries of the trust to whom a fiduciary duty is owed, it is surprising that that superior interest should not be protected by a fiduciary obligation upon the legal holder of the trust estate vis-à-vis a former trustee in circumstances where the successor trustee’s obligations to beneficiaries are fiduciary in nature.

34. It follows that, in my view, grounds of appeal 3 and 4 should be dismissed. Accepting that my conclusions on the issues raised by these grounds are in the minority, I otherwise concur in the orders proposed by Leeming JA.

35. LEEMING JA: The main issue in this appeal is both narrow and important. It is whether a successor trustee owes a fiduciary obligation to a former trustee not to deal with trust assets so as to destroy, diminish or jeopardise the former trustee’s entitlement to be indemnified from those assets, in circumstances where it was ultimately not disputed that the former trustee could obtain relief preventing a successor trustee from doing just that. The significance of the obligation being fiduciary as the primary judge found was that when the successor trustee transferred trust assets to third parties who were not bona fide purchasers for value without notice in order to defraud creditors including the former trustee, not only were the transfers voidable under statute, but the recipients and those involved were personally liable under either or both limbs of Barnes v Addy. Thus this appeal raises quite acutely the important question of when duties enforceable in equity are regarded as fiduciary duties.

36. So far as counsel’s researches reveal, no appellate court in the common law world has held that a successor trustee owes a fiduciary obligation to the former trustee. The primary judge relied on an unreported decision of the Supreme Court of South Australia. The primary judge did not have the benefit of argument on that case, because it was supplied to his Honour in written submissions after the conclusion of a 9 day hearing. The respondent invited the primary judge to follow the unreported decision which was said to be “consistent with the basic principles”. In the appellants' written submissions to the primary judge made in response, that course was described as a “radical development of the law”, unsupported by authority or principle, and which could not be undertaken without review of the fundamental principles. In this Court, the appellants said that the decision was devoid of reasoning, and wrong in principle.

37. A former trustee can prevent its successor dealing with trust assets in ways which would destroy, diminish or jeopardise the former trustee’s entitlement to be indemnified from those assets. That is a simple consequence of the fact that the equitable entitlement on the part of the former trustee to have recourse to trust assets to indemnify itself for expenses properly incurred has proprietary aspects which survive the trustee’s removal. To say that the successor trustee is subject to a duty not to deal with assets so as to prejudice the former trustee’s entitlement to be indemnified from those assets is merely the Hohfeldian correlative of that entitlement. Ultimately, I did not understand this to be in dispute between the parties.

38. However, I respectfully disagree with the conclusion reached at first instance that the duty is one which is fiduciary, and which therefore engages the personal and proprietary responses against third parties who knowingly receive or participate in breach of that duty, in accordance with the principles in Barnes v Addy. My reasons for that conclusion are contained below. At their core is my view that the conclusion represents a category error, confusing proprietary and personal rights. 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. Similarly, the recognition that the former trustee has a proprietary interest in trust assets, even when those assets are held by the successor trustee, does not entail a personal relationship of trust and confidence, to which Barnes v Addy liability attaches, between former and successor trustees. That is not to deny that the former trustee may, in an appropriate case, claim trust assets now held by third parties, for example when they have been transferred by the successor trustee with the intent of defrauding creditors.

39. The appeal also challenges some of the factual findings concerning the successor trustee’s dealings with trust assets, some aspects of which I have concluded fail while others are made out.

Background

Parties

40. Regrettably, the events giving rise to this litigation commenced almost two decades ago. Nor will this Court’s decision resolve the dispute.

41. The former trustee is Jaken Property Group Pty Ltd (JPG), and the successor trustee is Jaken Properties Australia Pty Ltd (Jaken). Mr Peter Sleiman was the sole director and shareholder of JPG until at least 11 August 2006. The primary judge found, and there is no challenge to the findings, that while a number of his relatives were directors of Jaken from time to time, at all times Mr Peter Sleiman was both a person who acted in the position of a director of Jaken (a de facto director) and a person in accordance with whose instructions or wishes the actual directors of Jaken were accustomed to act (a shadow director), even though he was not formally a director.

42. JPG was appointed the trustee of the Sly Fox Family Trust in June 2005. Mr Kostas Augerinos was the settlor. Mr Peter Sleiman was the “Specified Beneficiary”, the “Default Beneficiary” and also the “Appointor” of that trust. A wide power was conferred upon the trustee to distribute or accumulate income, and to pay capital, to the Specified Beneficiary or (among others) any spouse, child, grandchild, niece, nephew, sibling, parent, grandparent or any company owned by one of the above or of which one of the above was a director.

43. In 2005, JPG acquired two apartments on Cavanagh St, Southbank in Melbourne for $640,000, and land at William St, Kings Cross, on which O’Malley’s Hotel operated, for $8,900,000. In 2006, JPG acquired property at Cowper St, Granville for $750,000. I shall use the same abbreviations as the primary judge and refer to the Victorian Properties, the Kings Cross Property and the Granville Land. There were issues at trial, and to a lesser extent on appeal, as to whether those assets were held by JPG as assets of the Sly Fox Family Trust.

44. The appellants to this appeal are Jaken and persons and companies found to have been involved in Jaken’s dealings with the Victorian Properties, the Kings Cross Property and the Granville Land. Mr Tony Sleiman is the brother of Mr Peter Sleiman, and for a time was Jaken’s sole director. The sole director and shareholder of Superior Family Investments Pty Ltd is Ms Samantha Sleiman, who is Mr Peter Sleiman’s wife. Superior acquired the Granville Land in 2012. The sole director and shareholder of PSJK Holdings Pty Ltd was originally Mr Peter Sleiman, but he was replaced by Ms Samantha Sleiman in 2010. PSJK acquired the Victorian Properties in 2012. The other two appellants, Powerhouse Corporation Pty Ltd and O’Malley’s Hotel Pty Ltd, were involved in transactions concerning the Kings Cross Property and the hotel business conducted on those premises which are described in more detail below.

45. The Court was told that there are other proceedings, between the same parties and also involving the lender to Mr Sleiman and his companies, the National Australia Bank. The Court was told that there had been further transfers of title of some of the properties, including the Granville Land, to a company called Samanril Pty Ltd. The primary judge heard an application concerning this transfer, after his Honour had reserved judgment for somewhat longer than a year, and noted at [282]-[283] that the dispute had been resolved by undertakings. More recently, Mr Naaman has been granted interlocutory equitable relief based on a claim under s 37A of the Conveyancing Act 1919 (NSW) in respect of the transfer of the Granville Land by Superior to Samanril: Jaken Properties Australia Pty Ltd v Naaman [2023] NSWSC 268 at [45]. As will be seen, the primary judge contemplated a further hearing in the litigation of which he was seized, and it is also clear that the litigation presently before this Court is far from the entirety of the current proceedings bearing upon the same property.

46. The sole respondent is Mr Anthony Naaman, who (in circumstances summarised immediately below) is a judgment creditor of the former trustee JPG in the amount of $3,446,755.55 and who is entitled by way of subrogation in equity to the rights of JPG to be indemnified out of the assets of the Sly Fox Family Trust for liabilities incurred by it, including the judgment debt. The existence of JPG’s right of indemnity, that it extends to the judgment, and Mr Naaman’s entitlement to subrogation, are established by orders of this Court which are not subject to any appeal.

Two proceedings commenced in 2006

47. In August 2006, JPG commenced proceedings against Mr Craig Wheeler and Mr Naaman, based on a share sale agreement. On 11 August 2006, orders were made that JPG should pay Mr Naaman’s costs in relation to a notice of motion. The following week, JPG discontinued the proceedings by consent, with orders reserving Mr Naaman’s right to bring further proceedings.

48. According to documents dated 11 August 2006 and filed with ASIC in January 2007, Mr Peter Sleiman was replaced as sole director and sole shareholder of JPG by his nephew Mr Raymond Saab.

49. By statement of claim dated 6 November 2006, Mr Naaman commenced proceedings in the Common Law Division of this Court against JPG seeking “Judgment in the sum of $2,000,000” together with interest and costs. He claimed to be entitled to that amount, based on a “Guarantee Agreement” between him and JPG, by reference to the unpaid amounts of purchase price of a share sale agreement entered into between JPG as purchaser and Mr Naaman and two other men as vendors. The factual background is summarised in this Court’s judgment in Naaman v Sleiman [2015] NSWCA 259 at [6]-[16]. Nothing relevant to this appeal turns on the details.

50. On 12 January 2007, Jaken was registered, with Mr Tony Sleiman as its sole director. On 13 February 2007, JPG, Jaken and Mr Peter Sleiman entered into a “Deed of appointment and retirement of trustee of discretionary trust” by which JPG retired as trustee of the Sly Fox Family Trust and Jaken was appointed trustee. The deed included the following provisions:

1.3 Discharge of Retiring Trustee

On and from the date of this deed the Retiring Trustee is discharged from further performance of its obligations and duties as trustee of the Trust.

1.4 Assignment of Trust’s debts

The Retiring Trustee must give notice in writing to each person or entity owing moneys to the Retiring Trustee as trustee of the Trust and do all such things as may be necessary for the assignment to the New Trustee of any debt or chose of action.

1.5 Indemnity

The New Trustee indemnifies the Retiring Trustee against all debts which the Retiring Trustee has incurred and which are unpaid at the time of execution of this deed by all parties, while acting under and in terms of the Trust Deed and undertakes and agrees that the New Trustee will pay and discharge all such debts out of the assets of the Trust in accordance with the terms of credit or otherwise under which such debts were incurred.

51. Legal title to the Victorian Properties was transferred from JPG to Jaken by transfer dated 13 February 2007 but not registered until 5 February 2008. Jaken also became the registered proprietor of the Granville Land and the Kings Cross Property.

52. On 25 February 2007 Mr Naaman obtained costs certificates based on the orders for costs in his favour in the discontinued proceeding, in the amounts of some $25,000. On 27 February 2007, a liquidator was appointed to JPG. The liquidator’s report as to the company’s affairs recorded that the only liability was a $2,500 unsecured debt owing to Kostas Augerinos and Associates, the firm which had been accountants to the Sleiman family. It seems that the costs assessor’s certificate of determination was sent to the parties on or around 6 March 2007, although why an unquantified liability to Mr Naaman for costs was not recorded in the liquidator’s report is unclear. The winding up of JPG effected a stay of Mr Naaman’s proceedings in the Common Law Division: Corporations Act 2001 (Cth), s 500(2). JPG was subsequently deregistered, and the 2006 proceedings dismissed.

Mr Naaman’s 2009 proceedings against Mr Peter Sleiman and Jaken

53. In July 2009, Mr Naaman commenced separate proceedings against Mr Peter Sleiman and Jaken. By order made on 14 March 2013, JPG was re-instated and joined to these proceedings.

54. On 5 March 2014, Pembroke J entered judgment in favour of Mr Naaman against JPG for $2,000,000 plus interest. The basis on which that occurred was not clear from the appeal books, but this Court was told it was a default judgment because JPG had not filed a defence. That judgment was set aside by consent on 18 June 2014. On the same day, also by consent, Rein J granted an injunction preventing Jaken from disposing of, dealing with other than in the usual course of business, or further encumbering or diminishing the value of the property known as “the O’Malley’s Hotel” until further order of this court. This was significant to ground 8 of the present appeal, and related to two bases on which Mr Naaman sought to establish liability at trial. Mr Naaman’s claim that there was a tortious interference with the contract constituted by the consent to make the injunction was rejected at trial, and no attempt was made in this Court to challenge that rejection. However, Mr Naaman’s claim that there was a contravention of the order, resulting in the voidness for illegality of aspects of the “$3.6 Million Drawdown” is one aspect of ground 8 which is addressed below.

55. Mr Naaman’s 2009 proceeding was reheard over three days in December 2014, and dismissed: Naaman v Sleiman [2014] NSWSC 1869, with orders being made in March 2015. However, an appeal was heard by this Court (differently constituted) in August 2015, and in September 2015 Mr Naaman’s appeal was allowed in part, with the proceedings being remitted to the Equity Division of the Supreme Court for determination of the quantification of damages for loss of bargain following termination of the Deed: Naaman v Sleiman [2015] NSWCA 259.

56. On 25 February 2016, Young J entered orders in favour of Mr Naaman and JPG as follows:

3. Order [Jaken] pay [Mr Naaman’s] costs of the whole proceedings other than the costs specifically dealt with by the Court of Appeal.

4. That judgment be entered for [Mr Naaman] against [JPG] in the amount of $3,446.755.55.

5. Declare that [JPG] is entitled, as against [Jaken] and generally, to be indemnified out of the assets of the Sly Fox Family Trust for liabilities incurred by it in its capacity as trustee of the Sly Fox Family Trust, including in respect of the judgment entered against [JPG] in these proceedings.

6. Further declare that [Mr Naaman] is subrogated to the rights of [JPG] for its entitlement to be indemnified from the assets of the Sly Fox Family Trust for its liability to [Mr Naaman] in respect of the judgment to be entered in these proceedings, subject only to the costs and expenses of the liquidator of the creditors’ voluntary winding up of [JPG] and the claim of $2,500 which has been referred to in the evidence.

57. No appeal has been brought from those orders, which continue to bind the parties.

58. In substance, although not in form, Mr Naaman’s proceedings were by way of what might loosely be called equitable execution of the unchallenged judgment in his favour entered on 25 February 2016. In Mr Naaman’s closing written submissions following the hearing before the primary judge, the litigation was described as “enforcing his judgment”. That was the basis on which the appeal to this Court was conducted by both sides. I shall return below to what is meant by “equitable execution”.

59. In short, what has happened in the ensuing six years are attempts to enforce those orders, coupled with other rights to which Mr Naaman claims that he is entitled, and which the appellants deny. As will be seen below, at the forefront of the appellants’ submissions at trial and in this Court was the proposition that the only rights to which Mr Naaman was subrogated were judicial sale or the appointment of a receiver to the property of the trust, together with interlocutory relief.

The 2019 proceedings

60. The proceedings heard and determined by the primary judge were commenced by summons filed by Jaken on 23 January 2019. In substance Jaken’s claim was directed to removing a caveat on the Kings Cross Property. By cross-claim, Mr Naaman sought a suite of relief, which may be summarised as follows:

1. The transfer of the Granville Land by Jaken to Superior in October 2012 was voidable pursuant to s 37A of the Conveyancing Act 1919 (NSW) or a sham, and the transfer by Jaken to PSJK in March 2013 of the Victorian Properties was voidable pursuant to the Victorian equivalent, such that the land was property of the Sly Fox Family Trust (prayers 7-10 and 28-35);

2. Transactions resulting in the paying out of $3.6 million, and increasing the indebtedness of Jaken (the $3.6 Million Drawdown), were voidable pursuant to s 37A of the Conveyancing Act or a sham, such that money was held as trust property of the Sly Fox Family Trust (prayers 15-18);

3. An order to replace Jaken as trustee of the Sly Fox Family Trust, or alternatively that a receiver be appointed to Jaken and for the Sly Fox Family Trust to be wound up (prayers 20-21);

4. Equitable compensation, account and damages, together with interest and costs (prayers 22-27).

61. Many of the prayers directed to the Kings Cross Property were outside the scope of this appeal, and have been omitted from the summary above. The primary judge recorded at [175] that the appellants accepted that transactions which had purported to transfer the assets, including the Kings Cross Property, to two trusts of which Jaken was also the trustee were ineffective. Further, the primary judge deferred consideration of the appointment of a receiver, as well as all quantification of pecuniary remedies, to a second hearing (at [507]).

62. After judgment was reserved, receivers were appointed to the Kings Cross Property, and there were further applications concerning dealings with the Granville Land to which I shall refer below.

The reasons of the primary judge

63. The primary judge delivered a very large judgment of 508 paragraphs in April 2022 following a nine day trial in November 2020. There were many more issues at trial than on appeal. The first half of the reasons for judgment deal with the numerous transactions leading to the replacement of JPG as trustee and the dealings with the Victorian Properties, the Granville Land and the Kings Cross Property (and many others), which need not be summarised in any greater detail at this stage. His Honour then at [285]-[289] identified the following common ground:

First, Jaken holds the Kings Cross Property as trustee of the Sly Fox Trust. The plaintiffs accepted that the purported attempt to change that position in December 2014 (see [175] above) by Jaken becoming the trustee of the Sly Fox 1 Unit Trust and Sly Fox 2 Unit Trust was ineffective.

Second, there was no dispute that pursuant to the Young J Orders:

(1) Mr Naaman was a judgment creditor of JPG in the latter’s capacity of trustee of the Sly Fox Trust;

(2) JPG was entitled to be indemnified out of the assets of the Sly Fox Trust in respect of JPG’s judgment debt to Mr Naaman; and

(3) Mr Naaman was subrogated to the rights of JPG to be indemnified out of the assets of the Sly Fox Trust in respect of JPG’s judgment debt to Mr Naaman.

Third, it was accepted that (subject to the reserved for consideration issue of accounting) Mr Naaman had a caveatable interest in the Kings Cross Property by virtue of his position as a creditor of JPG who was subrogated to the rights of JPG to be indemnified out of the assets of the Sly Fox Trust in respect of JPG’s judgment debt to Mr Naaman.

Fourth, the cross-defendants accepted that Mr Naaman had standing to claim:

(1) declarations in relation to his alleged caveatable interest in the Kings Cross Property;

(2) relief under s 37A of the Conveyancing Act 1919 (NSW) (the CA) and the equivalent s 172 of the Property Law Act 1958 (Vic) (the PLAV);

(3) damages for intentional interference with contractual relations arising out of the alleged breach of the Rein J Orders;

(4) that Peter Sleiman and Tony Sleiman are jointly and severally liable for the Debt by operation of s 197 of the Corporations Act; and

(5) that a receiver should be appointed to the assets of the Sly Fox Trust for the purpose of a judicial sale as a creditor of the Sly Fox Trust.

Fifth, the cross-defendants accepted that the Rein J Orders of 18 June 2014 were made by consent and constituted a contract between Mr Naaman, Jaken and Peter Sleiman. It was also accepted that Peter Sleiman and Tony Sleiman were aware of the Rein J Orders at the time they were made or shortly after. Those orders were dissolved on 10 March 2015 by order of Stevenson J.

64. A great deal of the analysis in the reasons for judgment explained why his Honour made the very serious findings that not only was Mr Peter Sleiman an unreliable witness whose evidence could not be accepted as truthful unless it was against interest or corroborated by reliable contemporaneous documents (at [301]), but also that a series of documents produced by him were inauthentic. These included:

1. a lease purportedly entered in June 2011 for the hotel, which had been back-dated and was “likely to have been prepared around the time Peter Sleiman swore the affidavit for the purposes of attempting to persuade the Court that the Kings Cross Property was worth less than it in fact was” (at [321]);

2. an email purportedly dated 11 April 2014 concerning the removal of the caveats was a fabrication (at [326]);

3. a document purporting to be a bank statement which was inauthentic, and “used by Peter Sleiman in his affidavit made pursuant to the Rein J Orders to present a different picture about the financial condition and income of the Sly Fox Trust to what it actually was” (at [332]);

4. a document known as the “Tea Deed” was “no more than an inept attempt by Peter Sleiman to concoct evidence in support of Jaken’s case” (at [355]), and

5. a document purporting to vary the Sly Fox Family Trust, which was inauthentic (at [358]).

65. None of those findings was challenged on appeal.

66. Nor was there any challenge to the findings that Mr Peter Sleiman was both a de facto director (at [305]-[312]) and a shadow director (at [313]) of Jaken.

Primary judge’s reasoning on questions of principle

67. The appellants invoked what Brereton J had said in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [18]:

Fifth, being an equitable lien, the security is enforceable by the trustee only by judicial sale or appointment of a receiver, and not by foreclosure or by sale out of Court: Tennant v Trenchard (1869) LR 4 Ch App 537; ANZ Banking Group Ltd v Intagro Projects Pty Ltd [2004] NSWSC 1054 at [14]; Melbourne Tramways Trust v Melbourne Tramway & Omnibus Company Ltd (1887) 13 VLR 487 at 490; Re Pumfrey (1882) 22 Ch D 255 at 265; Re Stucley [1906] 1 Ch 67; Davies v Littlejohn (1923) 34 CLR 174 at 184; Hewett v Court (1983) 149 CLR 639 at 663; E I Sykes and S Walker, The Law of Securities: an account of the law pertaining to securities over real and personal property under the laws of Australian jurisdictions, 5th ed (1993) Sydney, Lawbook Co Ltd at 198. [Emphasis added].

68. However, the primary judge rejected the appellants’ submission that Mr Naaman was not entitled to much of the relief sought by him. His Honour said at [373] that the appellants had overlooked a later passage in Lemery at [50] where Brereton J had said:

To my mind, then, it follows in principle that a former trustee does not have a right to retain as against a new trustee, the trust assets as security for an accrued right of indemnity, though the former trustee is entitled to ensure the new trustee does not take steps which will destroy, diminish or jeopardise the old trustee’s right of security, which subsists in the trust assets after their transfer to the new trustee.

69. After addressing what had been said in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation of the Commonwealth of Australia (2009) 239 CLR 346; [2009] HCA 32 at [43] and Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 at [80], his Honour said at [377] that the next step was to identify what further assistance equity will give a former trustee such as JPG and, by subrogation to JPG’s rights, Mr Naaman in relation to trust assets in which JPG had a preferred beneficial interest where those assets had been transferred to a recipient who was not a bona fide purchaser for value without notice. His Honour summarised the position as:

The short answer is that JPG (and, by subrogation, Mr Naaman) was entitled to follow those assets into the hands of third parties (other than bona fide purchasers for value without notice) who will hold them on a constructive trust imposed by the court in aid of JPG’s proprietary interest in the Sly Fox Trust assets.

70. His Honour also relied upon Ron Kingham Real Estate Pty Ltd v Edgar [1999] 2 Qd R 439 at 443-444 for two propositions:

First, it is directly contrary to Jaken’s submission (which the Court rejects) that the only relief open to JPG in relation to assets that may have been paid away from the Sly Fox Trust would be to appoint a receiver to the Sly Fox Trust who could then pursue the funds. Second, if the subrogated creditor is entitled to sue the recipient of the funds on the basis of the trustee’s right of indemnity against those recipients (whether or not beneficiaries), there is no reason why the same principle would not apply to assets that have been paid away by or from a successor trustee. The point is that whether or not the trust assets are legally held by the first trustee or the successor trustee, they remain impressed with the lien in favour of the first trustee to whose rights the creditor is subrogated.

71. The primary judge placed considerable emphasis upon an unreported decision of Mansfield J in Rothmore Farms Pty Ltd (in prov liq) v Belgravia Pty Ltd [1999] FCA 745, where the facts bore some resemblance to those in the present case. A successor trustee vested the whole of the trust assets in another defendant. Mansfield J held that the first trustee’s right to indemnity survived its removal as trustee, and could be asserted against the recipient.

72. After an inquiry and account had been conducted against some of the defendants, the litigation came before Perry J on a claim for “damages and/or equitable compensation” against other defendants for the deficit in trust assets: Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd [2005] SASC 117. Perry J regarded the second trustee as owing a fiduciary obligation to the former trustee. In light of the proposition being accepted by the primary judge, and its forming the basis of much of the relief ultimately ordered, and the direct attack upon it in this Court, it is appropriate to reproduce the paragraphs of the judgment as they had been reproduced by the primary judge:

73. When Belgravia was substituted as trustee and thereby acquired legal ownership of the Trust assets, it became a fiduciary vis a vis Rothmore Farms, or a constructive trustee with respect to the protection of Rothmore Farms’ right of indemnity against those assets. Belgravia was obliged not to act with respect to the assets of the Trust in a way which jeopardised Rothmore Farms’ right of indemnity and its lien over the assets. …

76. It follows that when Belgravia acquired legal ownership of the Trust assets, it did so subject to the equitable lien or charge over those assets in favour of Rothmore Farms to the extent of Rothmore Farms’ indebtedness to the banks.

77. Furthermore, Rothmore Farms’ right of indemnity and its lien over the assets of the Trust took priority over the equitable interests of the beneficiaries of the Trust. …

79. Effectively, the equitable interest which remained in Rothmore Farms reduced pro tanto the interest of the beneficiaries:

“.. the trust property ... where there is a right in the trustee to indemnity from the assets, at any time is limited to the beneficial interest in the assets remaining after deduction of the value of the trustee’s interest comprising his right to indemnity out of the assets.” (Kemtron Industries Pty Ltd v Commissioner of Stamp Duties and the cases there cited. See also Re Neander Constructions Pty Ltd.)

80. When Belgravia resolved to vest the Trust and distribute the assets to Andrew Cooper, it did so as part of a process of carrying out a dishonest or fraudulent design, designed in part to prevent Rothmore Farms from exercising its lien, and in turn to prevent the banks from taking effective action to recover from Rothmore Farms its indebtedness to them. In doing so, Belgravia was in breach of its fiduciary duties owed to Rothmore Farms. …

85. Clearly, it owed a duty to maintain the Trust, rather than to dissolve it, so as to protect Rothmore Farms’ right of indemnity against the Trust assets. Its distribution of the whole of those assets to one of the beneficiaries was a flagrant breach of that fiduciary duty. It is nothing to the point that Rothmore Farms’ right of indemnity in the associated lien over the assets might have survived the transaction.

86. That the defendants Noelene Cooper and Robert Mills actively participated in Belgravia’s breach of fiduciary duties with knowledge of its dishonest or fraudulent design cannot be denied. …

89. In my view, this is one of those cases where it can be said that Noelene Cooper’s and Robert Mills’ involvement with the second transaction was an expression of the fact that they were:

“… acting as the corporation rather than for the corporation: … the person or persons who are the ‘directing mind and will’ of the corporation.”…

92. So that in the circumstances of this case, rather than regarding them as participating in a breach of fiduciary duty by Belgravia, one should have regard to their conduct as one and the same as the breach of fiduciary duty by the company. In those circumstances, resort to the second limb of the Barnes v Addy principle is otiose. …

109. But it was Belgravia’s breaches of fiduciary duty which Noelene Cooper and Robert Mills engineered or in which they participated which put Andrew Cooper in the position of being able to enter into the third transaction.

110. In those circumstances, there is no doubt that Noelene Cooper and Robert Mills remain liable in damages.

73. The primary judge concluded at [389] that “Perry J’s analysis of the relationship between the successor trustee and the former trustee as fiduciary, or the successor being a constructive trustee of the trust assets to protect the former trustee’s right of indemnity is correct”.

74. The primary judge also relied on statements by Young J in McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 at 637:

Recent decisions of the High Court have shown that the classes of people whose proceedings should be entertained by a court are wider than formerly thought: see Australian Conservation Foundation Inc v Commonwealth (1980) 146 CLR 493 at 547 and Onus v Alcoa of Australia Ltd (1981) 149 CLR 27.

As I have said before, the trust is the creature of Equity, rights under a trust exist only because of the orders an Equity Court may make and it is to my mind inconceivable that if a matter of mal-administration or, worse, fraud were brought to the attention of the Equity Court by a plaintiff who was a creditor, the court would not act on that motion. It certainly would not send the plaintiff away with his suit dismissed with costs because of a lack of standing. …

A fortiori, where there is a trust with no beneficiary or there is a trust whose sole beneficiary itself holds its interest on trust or pursuant to fiduciary obligations, equity would permit those for whom the beneficiary holds its interest, or creditors, to approach it for relief.

75. The primary judge concluded at [391] that:

While not in and of themselves dispositive, these dicta fortify me in the conclusion to which I have come that a creditor subrogated to a trustee’s right and power of indemnity from the trust assets is entitled to sue directly those who have received, with notice, money paid away or assets disposed of improperly from the trust property or who are responsible for that [improper] conduct.

Balance of the reasoning of the primary judge

76. The primary judge rejected Mr Naaman’s submission that the transfers impugned by him were shams. His Honour found at [400] that:

Assuming in Mr Naaman’s favour but without deciding that he could rely on the sham doctrine, the Court does not agree that any of the Impugned Transactions were legally shams, i.e. something other than what they appeared to be. Mr Naaman’s case otherwise succeeds precisely because those transactions had the effect they purported to achieve, being the unlawful alienation of assets of the Sly Fox Trust to third parties.

77. His Honour’s conclusion meant that it was unnecessary to resolve two further points. The first was whether the orders made by Young J enlarged or provided an independent source of Mr Naaman’s rights. His Honour said that were it necessary to do so, he would find that the orders were declaratory of Mr Naaman’s rights but did not themselves create or enlarge them: at [394]. The second was the effect of a deed of assignment entered into by JPG and its liquidator and Mr Naaman, whereby claims were assigned to Mr Naaman. His Honour said at [397]-[398]:

Jaken’s principal argument was that none of the causes of action relied upon by Mr Naaman accrued, if they did at all, before 13 February 2007 when JPG ceased to be trustee of the Sly Fox Trust. Therefore, it was submitted, JPG had nothing to assign.

Mr Naaman’s response to this argument was that insofar as any such causes of action accrued after 13 February 2007, they were not causes of action of JPG as trustee for the Sly Fox Trust. Instead, they were causes of action which JPG had against the assets of the trust and as against the new trustee. That submission is correct because it reflects the conclusion which the Court has reached about the nature of JPG’s rights both against Jaken and third parties set out above. Mr Naaman is, as the Court has already concluded, subrogated to JPG’s rights in those respects. To the extent it is not so subrogated, the Court is satisfied that the deed effectively assigns to Mr Naaman all of JPG’s rights in relation to the various causes of action pleaded by Mr Naaman in these proceedings. In relation to any particular one of those causes of action, no point arises insofar as whether Mr Naaman sues by subrogation to JPG’s rights or as assignee of those rights.

78. The primary judge found against the appellants in relation to Mr Naaman’s standing to bring claims which were property of the trust, the existence of a fiduciary duty, and the factual matters referred to above in relation to the Kings Cross Property and business, the Granville Land, the $3.6 Million Drawdown and the Victorian Properties. It will be most convenient to address the evidence and reasoning of his Honour in relation to those dealings simultaneously with grounds 7, 8 and 9 below.

79. His Honour concluded at [506]-[507]:

As occurred in the Rothmore Farms litigation, it seems inevitable that there will have to be a second hearing. This is because the Court will reserve consideration of the quantum of the equitable compensation for which the various cross-defendants have been found liable.

Insofar as there may be a shortfall in Mr Naaman’s recovery by subrogation to JPG between what would have been the outcome if the Impugned Transactions had not occurred and the final position after NAB’s receivership and other steps, the Court is satisfied that shortfall is the result of the breaches of fiduciary duty identified in this judgment. The reservation of consideration extends to the parties putting submissions as to how any compensation is to be calculated, a matter not addressed so far in any detail by anyone. What is clear is that quantum cannot be sensibly addressed until such matters have been addressed as the NAB receivership of the King’s Cross Property and O’Malley Hotel, whether it will be necessary to appoint receivers to the Victorian Properties and the Granville Land, the rights of NAB as a registered mortgagee over those assets, and no doubt other issues which will be identified by the parties.

186. His Honour found that “insofar as the result of the drawdown and the related movement of funds set out in [446] above was to increase Jaken’s principal liability to NAB by $3.6 million, this was a ‘further encumbering or diminishing [of] the value of the property’ other than in the usual course of business”. His Honour added that:

[i]t could not be in the usual course of business if, as the Court has found, there was no commercial purpose or benefit to Jaken demonstrated by assuming the additional liability and paying away the funds to Powerhouse. To that extent, the drawdown of the $12 million and payment away of that sum to Powerhouse (but crediting back the $1.422 million repaid by Powerhouse to Jaken) is void as a breach of the Rein J Orders.

187. His Honour rejected Jaken’s submission that there was no alienation of property for the purposes of s 37A, finding as follows at [465]:

Jaken paid away $12 million to Powerhouse as part of a series of transactions which must have included the $3.6 million, being the amount by which Jaken’s liability as principal to NAB increased over its former $8.4 million facility. That paying away, in the context of the series of transactions identified in [446] above, was an alienation. The Court finds that there was an intent to defraud or hinder creditors on the part of Jaken through both Peter Sleiman and Tony Sleiman given the absence of any commercial purpose or benefit to Jaken of assuming that additional debt as principal, Peter Sleiman’s obvious authorship of the arrangements, the knowledge on the part of both of them of the proceedings being brought by Mr Naaman and the imminence and subsequent making of the Rein J Orders. The inescapable conclusion is that the increase in Jaken’s liability to NAB which was effected by drawing down and paying away the $12 million to Powerhouse was intended to defraud creditors (most obviously, Mr Naaman) by increasing Jaken’s liability as principal to NAB as a secured creditor. The payment to Powerhouse, to the extent of $3.6 million, should be voided under s 37A.

188. His Honour was:

well satisfied that JPG has made out a cause of action against Jaken for breach of its fiduciary duty sounding in equitable compensation insofar as Jaken paid away $3.6 million which would otherwise have been available to it under its new facility to meet any obligation to indemnify JPG (to which right Mr Naaman is subrogated). Importantly, the same conclusion follows in relation not to the paying away, but quite separately in relation to assuming the increased primary liability to NAB for no commercial benefit. This is completely inconsistent with JPG’s obligation not to diminish the assets of the Sly Fox Trust available to meet JPG’s right of indemnity.

189. Further, because Powerhouse knew that when it received the $3.6 million as part of the $12 million it was doing so in breach of Jaken’s trust or fiduciary duties owed to JPG, such that if no tracing remedy were available, it was liable to JPG in equitable compensation for any shortfall, as were Messrs Peter and Tony Sleiman.

190. The primary judge rejected the submission that there had been tortious interference with the contract which underpinned the orders made by Rein J, on the basis that no damage had been established: at [470]. His Honour said at [466] that Jaken’s submission that the $3.6 million was held on trust as property of the Sly Fox Family Trust was “correct as a theoretical proposition”, but that only if “part of that fund is still held by Powerhouse it can only be a matter for account and inquiry”.

191. In oral submissions, the appellants emphasised the interconnectedness of the borrowings by Jaken and Powerhouse:

If these were two transactions which were not joined at the hip from the outset but came together in August 2014, the situation would be arguably different. But every last one of these dollars went out of the bank in 2011. The total was progressively reduced by 3 million and the same indebtedness was structured but not altered in any way that involved any disposition of property on this occasion in August 2014 or at all.

One could test it this way. It’s said that there was a payment away of 3.6 million. But plainly there wasn’t a payment away of 3.6 million. The 3.6 million remained precisely where it was. If it was a payment away of 3.6 million, then the 19 would have 3.6 more million attached to it with a balance of account at 22.6, which it plainly doesn’t. The difference is commercial substance and reality in circumstances where you’ve got the arrangement that was put in place in 2011, and it is then restructured, as it plainly was, in 2014.

Debt isn’t from the point of view of the debtor, isn’t property which may be said to be alienated. If it was money it could be paid away, but this was a liability not an asset. No asset was moved and there was no subtraction from any liability because each was still liable for the lot. It’s as simple as that. The purpose of s 37A is to protect or to provide a remedy against a situation where real assets against which a creditor might seek to recover are put beyond reach. Nothing of the kind happened here.

The situation of Jaken didn’t change because its exposure to the National Australia Bank remained exactly the same. Indeed, if anything it was reduced because it no longer had $22 million in overall liability to the bank but 19. That’s the way we put it. It matters not how hypothetically one might enter anything on the books. This is a $19 million mixed contingent liability, but a liability nevertheless. It would be different if there were additional moneys or changes in security, but there was none of that. Nothing changed other than an advantageous transaction was taken up in order to obtain a favourable interest rate for borrowings for the next period.

Its purposes were perfectly legitimate because, as the emails indicate, they were to obtain the advantage of five years fully fixed and advantageous interest rate. That’s our position in relation to that transaction.

192. There is a measure of artificiality in dealing with any of this ground. It may very well be that nothing whatsoever turns upon it. If the bank takes priority over Mr Naaman exercising his right of subrogation, and the bank is not fully repaid, then nothing would turn upon it. Further, as indeed some of the answers given and orders made by the primary judge make clear, it is difficult to make orders in the abstract, without the presence of all parties, which will need to be worked out when all claims are heard and determined together.

193. However, it is a most serious thing to conclude that there has been a breach of court order, and I should explain why I accept the appellants’ submission that that did not occur.

194. I see no error in the finding that what occurred was not in the usual course of business. The primary judge was well placed to conclude that the transactions coincided with the making of the orders by Rein J, and equally well placed, in light of an extensive history of Mr Peter Sleiman undertaking transactions which coincided precisely with events relevant to Mr Naaman’s pursuit of him (not all of which have been summarised in this judgment) to conclude that there was no commercial benefit and the increase of primary debt on the part of Jaken was done in an attempt to prejudice Mr Naaman’s rights of recovery. That is to say, it is a conclusion which is likely to have been informed by the impressions Mr Sleiman gave at trial, which the appellants have not come close to making out a case for appellate interference: Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55].

195. However, the primary judge also found that there was a “further encumbering or diminishing the value of the [King’s Cross Property]”. It is as well to reproduce the order which was found to have been breached:

An order that the second defendant [Jaken] (the Respondent) be restrained from disposing of, dealing with other than in the usual course of business, or further encumbering or diminishing the value of the property [known] as ‘the O’Malley’s Hotel’ Lot X DP XXXXX X and having street address XXX William Street Kings Cross (the Kings Cross Property) until further order of this court.

196. The starting point is to construe the order. The restraint has three (or arguably four) limbs. First, Jaken must not dispose of the property. Secondly, Jaken must also not deal with the property other than in the usual course of business. Thirdly, Jaken must not further encumber or diminish the value of the property.

197. On no view of the grammar of the order, or its evident sense, is the “usual course of business” requirement applicable to any limb other than the restraint against dealings. The primary judge found that the “further encumbering or diminishing the value” limb of that order was breached. It was not to the point to find that what occurred was other than in the usual course of business.

198. Moreover, I fail to see how there was a further encumbering or diminishing of the value of the Kings Cross Property. The company which owned that land had guaranteed the obligations of each of Jaken and Powerhouse to repay the earlier $8.75m and $13.25m facilities, and had granted fixed and floating charges over all of their present and future property. It is true that the primary judge found that the guarantee given by Powerhouse in 2011 of Jaken’s obligation to repay was limited to $8.75m, which remained unaltered after the refinancing: at [112]. No further guarantee or change was granted when the refinancing occurred.

199. True it is that the primary indebtedness of Jaken increased, and that of Powerhouse decreased. That made no difference to any encumbrance upon or value of the Kings Cross Property, which had been charged to secure the repayment of both debts.

200. The only point made by Mr Naaman contrary to the above in writing was thus:

the Appellants have failed to expose any error in the primary judge’s reasoning at J[463], namely that by the new larger facility it obtained, Jaken further increased its indebtedness as primary debtor and encumbered its security, the Kings Cross Property, further. That was, as the primary judge found, the “commercial reality” (J[463]) of the transaction of which Mr Naaman complains; the existence of the NAB Charge and other documents imposing “all moneys” provisions are entirely beside the point (cf AS[23]).

201. I disagree. What the primary judge in fact said at [463] drew upon the language of Hodgson J in Standard Chartered Bank v Antico (Nos 1 and 2) (1995) 38 NSWLR 290 at 314, a decision directed to a company “incurring a debt” for the purposes of the insolvent trading provisions of the corporations legislation:

in my respectful view the $3.6 Million Drawdown is an example of where a “further agreement imposes an additional debt on the company”. Jaken’s former facility was coming to an end. A new facility agreement was entered into for a larger sum. While it may be accepted that Jaken may have had liability to NAB for the entire borrowings of Jaken and Powerhouse under “all moneys” provisions of various security instruments, it would be contrary to both substance and commercial reality to overlook the fact that by its new facility agreement, Jaken’s express liability as principal or primary debtor to NAB increased by $3.6 million. Of the $12 million which Jaken drew from the new facility and paid away to Powerhouse, this necessarily included the $3.6 million, notwithstanding that Powerhouse appears to have repaid $1.422 million of that $12 million and, through a separate facility, also paid $7 million to Jaken (producing the amount of $8.4 million that was used by Jaken to clear its former loan account).

202. The passage relied upon by Mr Naaman was one which dealt overall with what occurred, before descending into the (necessarily different) analyses as to whether there had been a contempt of orders, an alienation of property to defraud creditors, or a breach of fiduciary duty.

203. It is true that the legal reality and the commercial reality was that Jaken increased its primary indebtedness. But the question for the purposes of its being in compliance with, or in contempt of, the orders made by Rein J did not turn on its indebtedness to its bank. It turned on whether there had been a disposition of, or a dealing otherwise in the ordinary course of business with, or an encumbrance or diminishing the value of, the Kings Cross Property. Once again there may be seen to be a conflation of the personal obligation of Jaken to its bank and the proprietary rights in the Kings Cross Property.

204. The Kings Cross Property remained charged to secure the repayment of both Jaken’s and Powerhouse’s facilities. The “commercial reality” was that the Kings Cross Property was security for facilities provided by the bank to Jaken and Powerhouse totalling $19m, not $22m.

205. Grounds 8(a)(ii) and (iv) are made out. In circumstances where no breach of any court order has been established, it is not necessary to address the consequences attributed by the primary judge to the breach of the order.

Alienation of property to defraud creditors

206. Section 37A(1) provides that:

Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

207. A person seeking to invoke the section needs to identify an “alienation of property”. The effect of the section is to make the alienation voidable at the instance of a person who is prejudiced by the alienation.

208. The joint judgment in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [65]-[68] said:

… [I]t has been held that, for the purpose of s 37A and its equivalents, “alienation” is a parting with property and includes a parting with some interest in the property.

Mayo J in In re Symon: Public Trustee v Symon said of the meaning to be given to the word “alienation” as used in the Crown Lands Act (SA):

“‘Alienation’ denotes the act, or series of acts, of alienating, and takes place whenever the owner of land, or of an interest therein, so acts as to divest himself of his interest or some lesser interest, and to vest the same in another person (Lang v Castle). Not every agreement that relates to property is necessarily an alienation or an undertaking to alienate. If all that is to be made over is a mere personal right, and not in the nature of property, there will, I apprehend, be no alienation”.

Alienation is the transfer of value from one person to another. It is usually understood as applying only to a transfer of property effected by the action of the transferor, as distinct from a transfer by involuntary operation of law.

Money, as property, is clearly susceptible of transfer or alienation as is any other property. The declarations of the dividends (which appear to have been final not interim dividends) gave rise to debts payable by the company to the shareholders. The alienation of property was made by the company in discharging its indebtedness to the shareholders. [footnotes omitted]

209. Section 37A is to be construed liberally: see Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [20] and, by way of recent example, Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas [2023] FCAFC 93 at [133]-[135].

210. Nonetheless, it is necessary to identify the alienation. It is not enough to say that the new $12m facility which Jaken obtained from the bank was voidable. That would simply mean that Jaken was not authorised to draw down any of the $12m, and would remain in breach of the unextended $8.75m facility it had obtained in 2011. Moreover, the bank was not a party to the litigation, and had an entitlement to be heard against a claim by Mr Naaman or JPG that a contract between the bank and Jaken was voidable.

211. It was entirely understandable therefore that Mr Naaman focussed upon the economic effect of the refinancing, which was to increase the primary indebtedness of Jaken by $3.6 million, and to reduce the primary indebtedness of Powerhouse. Even so, it remains necessary to identify the alienation.

212. At one stage, it was said that what was alienated was the “value”:

KIRK JA: What property of JPA was alienated such as to be the subject of 37A?

AFSHAR: The unencumbered value, that is the equity, that’s what I …

LEEMING JA: Well, that’s a helpful answer because it means I think I now understand the difficulty I have. Value is an accounting concept; it’s not property.

213. However, thereafter counsel embraced a suggestion from the Court that the section could be applied by looking at the individual transactions which occurred at the time of the refinance, relevantly, the crediting of a new account in Jaken’s name with $12,000,000 representing the full drawdown of the new facility on 8 September 2014, and thereafter the crediting of Powerhouse with $12,000,000 (“Debt Reallocation”) on 9 September 2014, coupled with credits to Jaken on the same day of $1,422,954.86 and $7,000,000 (“Debt Reallocation”). The net effect of those three transactions, all on 9 September 2014, was an approximate increase of Jaken’s indebtedness to the bank by $3.6 million and a decrease of Powerhouse’s indebtedness to the bank in the same amount.

214. There is a difficulty with the seeming incompleteness of the documentation, and in particular the signed direction to pay which has been left blank. Further, the “debt reallocation” entries in the bank statements of Jaken and Powerhouse may well reflect internal entries made by the bank. However, I see no reason to doubt the finding that “the increase in Jaken’s liability to NAB which was effected by drawing down and paying away the $12 million to Powerhouse was intended to defraud creditors (most obviously, Mr Naaman) by increasing Jaken’s liability as principal to NAB as a secured creditor”. The increase in Jaken’s indebtedness to NAB was mirrored by a corresponding reduction in Powerhouse’s indebtedness to NAB. Had Jaken in fact received the additional $3.6m in loan funds, and given them to Powerhouse, which were then used by Powerhouse to repay NAB, then Jaken’s gift would be an alienation of property.

215. In circumstances where the documents are incomplete, but the purpose clear, I accept that it would be open to conclude that the three entries in the accounts of Jaken and Powerhouse all on 9 September 2014 identified above, whereby Jaken’s indebtedness increased by $3.6 million, and Powerhouse’s indebtedness decreased by the same amount, reflected an alienation of Jaken’s money. The alienation may be seen from the fact that Jaken became indebted to its bank from $8.4 million to $12 million, and Powerhouse’s indebtedness reduced. That said, the bank has an entitlement to be heard in relation to that conclusion. If there is an alienation of property, that involves looking at the consequences of a series of inter-related dealings involving the bank and its customers, Jaken and Powerhouse. Insofar as Mr Naaman seeks orders declaring transactions involving the bank to be void, the bank is a necessary party.

216. I do not accept the appellants’ submission that just because all there was was debt meant that there could not be an alienation of property. The starting point for s 37A of the Conveyancing Act is to identify an “alienation of property”. Jaken did not, strictly speaking, have $3.6 million in “cash” (which would be possession of a large volume of banknotes). Nor did it have $3.6 million of “money” “in” the bank (which would be a bank account in credit reflecting an indebtedness of the bank to its customer Jaken in the amount of $3.6 million). Jaken was at all times indebted to the bank. But the payment away of borrowed money is capable of being an alienation of property.

217. There is a more general point. Order 10 made on 1 July 2022 is that “The Draw Down is void” while order 28 made it clear that “none of the relief set out above is intended to affect the rights of the National Australia Bank”. The effect of those orders is, with respect, quite unclear. One difficulty is identifying precisely which transactions between banker and customer are void, because of the definition of “Draw Down”. A separate difficulty is identifying the effect of the voidness which, whatever be its effect, plainly enough does not affect the rights of the National Australia Bank. The preferable course is for no order to be made under s 37A in relation to transactions involving Jaken’s bank account in proceedings without the bank first being heard. As previously noted, it may well be that the matters addressed above are entirely academic.

213. Finally, insofar as ground 8 challenged the findings and answers to questions that the “$3.6 Million Drawdown” was in breach of fiduciary duty, it is made out for the reasons given above on the main grounds of appeal. There was no such duty.

Conclusion and orders

219. The result is that the appellants have succeeded on the main point argued on the appeal, namely, that there was no fiduciary obligation owed by Jaken to the former trustee JPG. That has consequences for many of the claims of ancillary liability for knowing receipt or knowing assistance in accordance with the principles in Barnes v Addy. The appellants have also succeeded in setting aside the finding that the “$3.6 Million Drawdown” involved a breach of the Court’s orders.

220. However, JPG and through it Mr Naaman is a creditor of the trust who is entitled to have recourse to trust assets including land alienated contrary to s 37A of the Conveyancing Act and its Victorian equivalent. The appellants have failed to set aside the findings of the primary judge in those respects. In respect of the claim based on the “$3.6 Million Drawdown”, that should not be determined finally in the absence of the bank.

221. Speaking generally, the consequence is that all of the questions which turn on a breach of trust or a breach of fiduciary duty should be answered negatively. So too should the questions which involve a breach of the orders made by Rein J. The answers to the questions which turn on an alienation to defraud creditors should not be disturbed, although that is without prejudice to the bank’s entitlement to be heard on those issues.

222. Questions 1-3 pose quite abstract questions which need not be answered. For the reasons given above, it has not been necessary to address the effect of the Deed of Assignment. I presently favour the view that the answers to questions 1-4 should be set aside, and in lieu thereof they should be answered collectively by reference to the ground of appeal: “Insofar as these questions are directed to Mr Naaman’s and JPG’s standing to sue for breaches of fiduciary duty owed by Jaken to JPG, they do not arise because no such duty was owed. Otherwise, it is unnecessary to answer these questions.”

223. It is possible that there is some subtlety in the questions which I have overlooked, or that there may be matters of which this Court is presently unaware which bear upon some of the answers. The orders I propose will permit the parties to be heard further as to the answers to the questions.

224. I understood that it was common ground that these proceedings should be returned to the Equity Division where, together with the other proceedings pending in the Supreme Court, there can be a determination of the relief, if any, to which Mr Naaman and JPG are entitled, in light of the other claims upon the trust property and what was formerly the trust property. In particular, the bank will be entitled to be heard, including on such evidence as it is minded to adduce, on (a) the finding that the “$3.6 Million Drawdown” was an alienation of property to defraud creditors, and (b) whether any orders should be made consequent upon that finding. The parties will be entitled to make application for any further orders, or different orders from those made by this Court, by application within the period specified by UCPR r 36.16.

225. As previously noted, on 1 July 2022, the primary judge made 21 further substantive orders informed by the answers to those questions, as well as a suite of interlocutory orders including order 28 “The Court notes that none of the relief set out above is intended to affect the rights of the National Australia Bank”. Order 1(a) is not in dispute, nor is order 20 that Jaken’s amended summons be dismissed, but otherwise the notice of appeal seeks to set aside orders 1(b) – 19 and 21 (and some of the other orders). Insofar as those orders duplicate the answers to the questions, it is far from clear that they are necessary, but the orders I propose will permit the parties to be heard as to that, as well as on any further orders this Court should make. I incline to the view that the preferable way of recording the outcome of a hearing which appears in substance to have been directed to answering questions reserved for separate determination is for orders recording the questions and their answers to be made. My present view, subject to the parties’ submissions, is that any need to vary the interlocutory orders is best addressed in the Equity Division, and it is open to the parties to submit that other orders should also preferably be made in the Equity Division (in saying that I have in mind in particular the desirability of the bank being heard in relation to and being bound by the orders, which cannot happen if they are made in this Court in proceedings to which the bank is not a party).

226. Costs are slightly complex. The appellants have succeeded on the main issue argued. However, their success has been mixed, and to some considerable extent it may be pyrrhic (this depends on matters of which this Court may not be fully apprised). The orders I propose will permit the parties to apply for an order as to the costs in this Court. However, it may well be that the appropriate order as to costs is that there be no order as to costs, reflecting the partial success of the appeal. Whether the costs at first instance should be redetermined by this Court, or left to the Equity Division, is a matter on which the parties will also be heard.

227. The formal orders I propose are as follows:

1. Grant leave to appeal.

2. Appeal allowed in part.

3. Set aside the answers to questions 1-4, 5(c) and (d), 6(b) and (c), 7, 8, 12, 14, 16(c) and (d), 17(b) and (c), 18, 19, 28(c) and (d), 29(b) and (c), 30, 31, 32, 33, 34, 35, 36, 37.

4. Set aside orders 1(b)-19 and 21 made on 1 July 2022.

5. Direct the parties to file and serve, within 14 days of today, an agreed form of answers to the questions, any order as to the costs of the appeal, and any other orders which this Court should make, or in default of agreement, the parties to file and serve within 14 days of today the answers and orders for which they contend accompanied by submissions not exceeding ten pages in support, and to file any submissions in response not exceeding five pages within 7 days thereafter, with a view to this Court resolving all outstanding issues on the papers.

228. KIRK JA: I agree with judgment of Leeming JA. I add the following observations with respect to the issue of whether or not the first appellant owed the respondent a fiduciary duty.

229. As explained by Bell CJ at [1], the reason that issue arises is because the respondent sought to rely on the principles in Barnes v Addy in order to obtain relief against the appellants. The motivation to seek such relief is understandable in the circumstances of this case where, according to unchallenged findings, “Jaken engaged in a dishonest and fraudulent design to strip itself of assets that might otherwise be available to satisfy” the judgment debt in favour of the respondent, doing so at the direction of Tony Sleiman and Peter Sleiman: Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517, [431], also [433]. However, the lack of substantive merit of the appellants in this case cannot distract from the imperative of maintaining coherent legal principle.

230. This case illustrates that the interests of the previous trustee may be vulnerable to exercises of power by the current trustee. Vulnerability is an important factor pointing towards recognition of a fiduciary duty: see eg Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97 per Mason J, 142 per Dawson J; [1984] HCA 64; Breen v Williams (1996) 186 CLR 71 at 107 per Gaudron and McHugh JJ; [1996] HCA 57. Similarly, at common law, vulnerability is an important factor militating in favour of the existence of a duty of care: eg Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 at [23]. In neither case is it conclusive. There are many circumstances where one person in a relationship is vulnerable to actions of the other where there will be no fiduciary duty (or duty of care). For example, the interests of a mortgagor will be vulnerable to when and how a mortgagee exercises a power of sale. Professor Finn said the following of an American decision finding a fiduciary duty in that context:

One may wish in the interests of the mortgagor to set a standard of proper conduct for the mortgagee. But unlike in New Hampshire, no court in Australia or England, for example, would describe that standard as fiduciary – even though their standard would, most likely, differ little from that of New Hampshire.

[From “The Fiduciary Principle”, reproduced in Fiduciary Obligations (Federation Press, 2016 reproduction) at [663], citation omitted; see also [720]. As to what duties a mortgagee exercising a power of sale is subject to, see eg JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis, 5th Edition, 2015) at [2-215]-[2-230]].

231. Similarly, the interests of a mortgagee may be vulnerable to the way in which a mortgagor makes use of the subject property; a person who has contracted to purchase property may be vulnerable to the actions of the vendor; a tenant operating a business may be vulnerable to actions taken by the landlord with respect to the business. In such instances, in general, no fiduciary duty arises. The interests of the vulnerable person are taken by the law to be sufficiently protected by their other available legal rights and claims.

232. Here, vulnerability does not suffice when account is taken of other relevant circumstances. The following factors are of particular significance in my view. First, picking up on the point just made, if a fiduciary duty was recognised in this type of case then it is difficult to see why it would not be recognised in other similar circumstances where one person holds property in which another has some interest, such as a mortgagee, some other type of security-holder, or a person with an equitable lien, charge or claim: note, further, Fiduciary Obligations, [674]-[675], [679]. That would be a significant expansion of the role of fiduciary duties in Australian law, cutting across developed legal principle. To treat the position of a previous trustee as special compared to these other situations is more anomalous than recognising that the beneficiaries of the trust – who rank behind any claim of the previous trustee on the right of indemnity – are owed fiduciary duties whilst the previous trustee is not.

233. The vulnerability of a person in the position of the respondent should also not be overstated. The previous trustee has proprietary rights. This case also illustrates the potential application of provisions such as s 37A of the Conveyancing Act 1919 (NSW). Further, there was no dispute in this case that the respondent’s interest in the realty held by the trust was capable of being protected by a caveat on title. That is more than can be said of some other valuable equitable interests: note Thynne v Sheringham [2023] NSWCA 181.

234. Secondly, fiduciary duties arise in a relationship between two or more persons. Here, as explained by Leeming JA at [108]-[111], the respondent’s argument evolved to asserting that the fiduciary duty here would come into existence if and when the trustee had notice of a “realistic” claim by the previous trustee to reimbursement or exoneration. That reflected the fact that a previous trustee itself may only become aware of a possible need to claim on its right of indemnity some years after it has ceased to be trustee, following a claim being made upon it in connection with its operation of the trust. Leeming JA’s description of such a duty as “decidedly odd” is apt (at [140]). It would be unlike the ongoing duty which exists in established categories of fiduciary relationship, which spring into being by nature of the relationship rather than being turned on by notification of some claim which could be characterised as realistic. Fiduciary duties are onerous. It is unsatisfactory that the existence of such duties would depend on such an uncertain and subjective criterion.

235. True, a mortgagee who has sold the mortgaged property and retains a surplus owes a fiduciary duty to those entitled to that surplus: Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44 at [35], [49]; Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 at [139]-[144]. That person might be someone with whom it has no pre-existing relationship, such as a second mortgagee. And it is a duty which only arises on the occurrence of a particular event. Even so, the event which causes the duty to come into existence is a clear one: the property is sold and there is a surplus. That distinguishes it from the type of duty asserted here.

236. Thirdly, to find that a trustee owes a previous trustee a fiduciary duty with respect to management of the trust property sits uncomfortably with the nature of the relationship between a trustee and beneficiaries of the trust. The trustee, of course, owes a fiduciary duty to the beneficiaries. That duty requires “absolute and disinterested loyalty”: see Ancient Order of Foresters inVictoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43 at [67], and authority there cited. The loyalty owed by the trustee to beneficiaries does not subjugate all of the trustee’s own interests. The trustee is entitled to exercise its right of reimbursement or exoneration out of the trust assets, in priority to the beneficiaries: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [47]-[51]; Carter Holt Harvey Woodproducts Australia Pty Limited v Commonwealth (2019) 268 CLR 524; [2019] HCA 20 at [29]-[33], [80]-[84], [130]-[134]. But that right must be understood in the context of the relationship.

237. As Finn explained, a key question in considering whether to recognise a fiduciary duty is to ask whether the purpose of the relationship is “to further [the parties’] several interests, the joint interest or the interests of one alone”: Fiduciary Obligations, [719], see also [714] and [720]-[722]. The purpose of the relationship between trustee and beneficiaries is not to further the interests of the trustee; it is the other way around. Leaving aside particular contractual obligations, such duties as a current trustee has to the previous trustee arise by virtue of its position as trustee, a role in which its duty is to further the relevant interests of the beneficiaries. That is not a context favouring recognition of a duty of absolute and disinterested loyalty to the previous trustee to the extent of its possible claim for indemnity which takes priority over the interests of the beneficiaries. The previous trustee’s claim on the trust assets is, after all, of the same kind as the equivalent right of the current trustee.

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Amendments

08 September 2023 - change to list formatting at [8]

08 September 2023 - replaced "JPG" with "Jaken" in [26], so it reads "who appeared for Jaken"

03 April 2024 - replaced “their” by “the appellants” in fifth sentence of [36], so it reads “In the appellants’ written submissions”

- replaced “Granville land” by “Granville Land” in fourth sentence of [44]

- replaced “action” by “actions” in [89(2)]

- inserted reported citation in [120] and to coversheet

- corrected “198,808.18” to “198,808.81” in first sentence of [120]

- inserted “aside” in penultimate sentence of [157], so it reads “this Court should set aside that”

- deleted “the” before “JPG” in fourth sentence of [158], so it reads “were purchased by JPG”

- replaced “constrictive” by “constructive” in point 12 of quote in [167]

- replaced “guarantees” by “guarantee” in third sentence in [198]

- replaced “Land” by “Property” in [199], so it reads “Kings Cross Property”

- inserted “of” in third sentence of [203], so it reads “disposition of, or a dealing otherwise”

- replaced “having” by “have” in final sentence of [225]

24 April 2024 - At [1] – inserted after “Barnes v Addy” the following – (1874) LR 9 Ch App 244

At [3] – inserted pinpoint after “2 SCR 226” and changed “Gaudron and McHugh J” to “Gaudron and McHugh JJ”

At [8] – McHugh and Gaudron JJ changed to “Gaudron and McHugh JJ”

At [13] – “characterized” changed to “characterised”

At [20](1) – change “Octavo at 471” to “Octavo at 371”

At [28] – where it reads “distinctly odd” it should read “decidedly odd”