Jaken Properties Australia Pty Ltd v Naaman

Jaken Properties Australia Pty Ltd (the former trustee) appealed to the Court of Appeal of New South Wales against orders made by the primary judge concerning its entitlement to indemnity from a trust fund managed by Naaman (the successor trustee). The dispute arose from the former trustee's claim for reimbursement of expenses properly incurred in managing the trust property, and its assertion of a fiduciary duty owed by the successor trustee to protect this entitlement. The former trustee also alleged that the successor trustee had transferred trust property to third parties in breach of an asset preservation order and with the intent to defraud creditors.

The Court of Appeal was required to determine whether a fiduciary duty was owed by the successor trustee to the former trustee in relation to the former trustee's entitlement to be indemnified for properly incurred expenses. Further, the court had to consider whether the former trustee was vulnerable to the exercise of power by the successor trustee, and if so, what remedies were available, including whether the former trustee was limited to seeking the appointment of a receiver, judicial sale, and interlocutory relief, or if an analogy could be drawn with the duty owed by a mortgagee with a surplus after exercising a power of sale. The court also had to address whether trust property had been transferred to third parties in breach of an asset preservation order and with the intention to defraud creditors.

The Court of Appeal allowed the appeal in part, finding that a fiduciary duty did exist in the circumstances. The court reasoned that the former trustee's entitlement to indemnity constituted a proprietary interest in the trust property, and the successor trustee, by virtue of its control over the trust assets and the former trustee's vulnerability, owed a duty to protect that interest. The court considered the analogy with the duties of a mortgagee and found it applicable, establishing that the successor trustee could not act in a way that prejudiced the former trustee's right to indemnity. The court set aside numerous answers to questions and orders made by the primary judge, directing the parties to agree on revised answers and orders or to make submissions for the court to resolve the outstanding issues.