Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd

Lemery Holdings Pty Ltd sought to recover loans from Reliance Financial Services Pty Ltd, which was a trustee of the Lemery Family Trust. The dispute arose following the winding up of the trust and the removal of Reliance as trustee, leading to the appointment of a new trustee, Lemery Holdings. Lemery Holdings sought to recover loans made to the trust, arguing that these loans constituted trust assets, and sought to retain possession of trust assets to secure its indemnity pending determination of the proceedings. The case was heard in the Supreme Court of New South Wales.

The primary legal issues before the court were whether the claims for recovery of loans constituted trust assets, whether a removed trustee could retain possession of trust assets to secure its indemnity pending determination, whether the right of indemnity survived the transfer of trust assets to a new trustee, and whether a removed trustee was entitled to retain assets as against a new trustee to secure its indemnity. The court had to consider the interplay between the rights of trustees, the nature of trust assets, and the equitable principles governing indemnity and liens.

The court held that the claims for recovery of loans did constitute trust assets. It determined that the right of indemnity of a removed trustee survived the transfer of trust assets to a new trustee, and that such a trustee could retain possession of the trust assets to secure its indemnity pending the determination of the proceedings. The court emphasised that the right of indemnity was an equitable right that attached to the trust assets and could not be divested by the mere transfer of those assets to a new trustee. The court concluded that a removed trustee was entitled to retain assets as against a new trustee to secure its indemnity, provided that such retention was reasonable and did not prejudice the interests of the beneficiaries of the trust.

The court ordered that Lemery Holdings was entitled to retain possession of the trust assets to secure its indemnity pending the determination of the proceedings, and that Reliance Financial Services was liable for any losses incurred by Lemery Holdings as a result of its removal as trustee. The court further directed that the trust assets be held in a neutral account pending the final resolution of the claims and counter-claims between the parties.