GAGELER CJ, GORDON, EDELMAN, STEWARD, GLEESON, JAGOT AND BEECH‑JONES JJ
ANTHONY NAAMAN APPELLANT
AND
JAKEN PROPERTIES AUSTRALIA PTY LIMITED & ORS RESPONDENTS
Naaman v Jaken Properties Australia Pty Limited
[2025] HCA 1
Date of Hearing: 11 October 2024 Date of Judgment: 5 February 2025
S26/2024
ORDER
Appeal dismissed with costs.
On appeal from the Supreme Court of New South Wales
Representation
B W Walker SC with P Afshar Mazandaran and N A Wootton for the appellant (instructed by KB Legals)
J C Kelly SC with S V Shepherd and A E Maroya for the respondents (instructed by Jeresyn Legal)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Naaman v Jaken Properties Australia Pty Limited
Equity – Fiduciary obligation – Successor trustee and former trustee – Where former trustee has entitlement in equity to be indemnified out of trust assets for expenses and liabilities properly incurred – Where trustee has beneficial interest in trust assets commensurate with that entitlement to indemnification – Where appellant is judgment creditor of former trustee and subrogated to former trustee's entitlement to indemnification – Where successor trustee transferred trust assets to third parties leaving insufficient trust assets to satisfy former trustee's entitlement to indemnification – Whether successor trustee owes fiduciary obligation to former trustee – Whether fiduciary obligation owed in respect of entitlement of former trustee to indemnification out of trust assets or commensurate beneficial interest in trust assets retained by former trustee following replacement by successor trustee.
Words and phrases – "beneficial interest", "cestui que trust", "dishonest and fraudulent design", "equitable proprietary interest", "exoneration", "fiduciary obligation", "fiduciary relationship", "former trustee", "incoherence", "indemnification", "knowing assistance", "priority", "security interest", "successor trustee", "vulnerability".
GAGELER CJ, GLEESON, JAGOT AND BEECH-JONES JJ. It has been settled by decisions of this Court,[1] consistently with decisions of many other courts in Australia and elsewhere,[2] that a trustee has as an incident of office an entitlement in equity to be indemnified out of the trust assets (by way of recoupment of past expenditure or exoneration from existing liability) for expenses and liabilities properly incurred by the trustee in the execution of the trust and that the trustee has a beneficial interest in the trust assets commensurate with that entitlement to indemnification which takes priority over the beneficial interests that the persons for whose benefit the trustee is bound to administer the trust assets (the cestuis que trust) have in the trust assets. It has also been acknowledged in this Court,[3] consistently with decisions of many other courts in Australia and elsewhere,[4] that the entitlement to indemnification and the commensurate beneficial interest that the trustee has in the trust assets survive replacement of the trustee by a successor trustee.
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Naaman v Jaken Properties Australia Pty Limited [2025] HCA 1
Case
[2025] HCA 1
Decision Date
CaseChat Overview and Summary
This case involved an appeal to the High Court of Australia concerning the rights of a former trustee against a successor trustee. The appellant, a judgment creditor of the former trustee, Jaken Property Group Pty Ltd ("JPG"), sought to enforce its rights through subrogation to JPG's entitlement to be indemnified from trust assets. The dispute arose when the successor trustee, Jaken Properties Australia Pty Ltd ("Jaken"), transferred trust assets to third parties, leaving insufficient assets to satisfy JPG's right of indemnification.
The central legal issue before the High Court was whether the successor trustee, Jaken, owed a fiduciary obligation to the former trustee, JPG, in respect of JPG's entitlement to indemnification from trust assets, or the beneficial interest in those assets that corresponded with that entitlement. The appellant argued that Jaken's actions, which were found by the primary judge to have involved a dishonest and fraudulent design to strip assets, constituted a breach of such a fiduciary duty.
The High Court affirmed that a former trustee has an equitable proprietary interest in trust assets to the extent of their entitlement to indemnification for properly incurred expenses and liabilities. This interest survives the trustee's removal and takes priority over the beneficiaries' interests. However, the Court held that a successor trustee does not owe a fiduciary obligation to a former trustee in relation to this entitlement. The Court reasoned that while both the former and successor trustees may have beneficial interests in the trust assets, this co-existence does not establish a fiduciary relationship between them. The former trustee's recourse is to enforce their equitable proprietary interest through legal proceedings, such as seeking an injunction or the appointment of a receiver, to protect their entitlement from being diminished or destroyed by the successor trustee's conduct.
The appeal was dismissed with costs.
Orders
Orders of the court
Appeal dismissed with costs.
Background
Background to the litigation
In this appeal, the significance of the successor trustee's obligation not to deal intentionally with the trust estate to the prejudice of the former trustee's entitlement to be indemnified from that trust estate being fiduciary is to be understood in light of the unchallenged findings by the primary judge. First, having assumed the office of trustee in circumstances in which it is objectively apparent that the former trustee had equitable proprietary rights that prevailed over those of the beneficiaries, the successor trustee engaged in a dishonest and fraudulent design to strip itself of assets that might otherwise be available to satisfy the former trustee of its right of exoneration and thus the appellant's rights via subrogation. Second, as part of that design, the successor trustee transferred trust assets to companies, who were not bona fide purchasers for value without notice, in order to defraud creditors of the trust (including the former trustee). Third, the dishonest and fraudulent design was at the direction of two brothers who were the director and the shadow or de facto director, and the controlling minds, of the successor trustee. Fourth, the two controlling minds of the successor trustee, as well as the recipients of the property (collectively, the "third parties"), were thereby each personally liable to the former trustee, and to the appellant by reason of the appellant's unchallenged rights of subrogation. Facts and background The facts are not in dispute. The following summary is drawn from the detailed factual analysis of the primary judge and Leeming JA. Parties and properties The former trustee, Jaken Property Group Pty Ltd ("JPG"), was appointed trustee of the Sly Fox Family Trust ("the Trust") in June 2005 by a Discretionary Trust Deed ("the Trust Deed"). Mr Peter Sleiman, the second respondent, was the sole director and shareholder of JPG until at least 11 August 2006. He was also the "Specified Beneficiary", the "Default Beneficiary" and the "Appointor" of the 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. In 2005 and 2006, JPG acquired two apartments in Melbourne for $640,000 ("the Victorian Properties"), land in Kings Cross, Sydney, on which the O'Malley's Hotel operated, for $8.9 million ("the Kings Cross Property") and land in Granville, New South Wales for $750,000 ("the Granville Land"). The other respondents to this appeal are the successor trustee, Jaken Properties Australia Pty Ltd ("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, the third respondent, is the brother of Mr Peter Sleiman and, for a time, was Jaken's sole director. Superior Family Investments Pty Ltd ("Superior"), the fourth respondent, acquired the Granville Land in 2012. The sole director of Superior is Ms Samantha Sleiman, who is Mr Peter Sleiman's wife (and is not a party to the proceedings). PSJK Holdings Pty Ltd ("PSJK"), the sixth respondent, acquired the Victorian Properties in 2012. The sole director and shareholder of PSJK was originally Mr Peter Sleiman but he was replaced by Ms Samantha Sleiman in 2010. O'Malley's Hotel Pty Ltd, the fifth respondent, ran the hotel on the Kings Cross Property. Powerhouse Corporation Pty Ltd, the seventh respondent, was the recipient of funds drawn down from a facility held by Jaken with the National Australia Bank ("NAB"), which was secured over the Kings Cross Property.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
GAGELER CJ, GLEESON, JAGOT AND BEECH-JONES JJ
(dissent)
GORDON, EDELMAN AND STEWARD JJ
(dissent)
The absence of anomaly is even more apparent when it is recognised that the successor trustee, by reason of its own entitlement to indemnification, has its own beneficial interest in the trust assets of the same nature as the beneficial interest of the former trustee. Notice can be taken of the co-existence of the beneficial interests of the former trustee and of the successor trustee without needing to examine whether the two interests rank pari passu or whether the interest of the former trustee takes priority over the equivalent interest of the successor trustee, which was the issue on which the Privy Council divided in Halabi.[54][54][2023] AC 877 at 882 [1], 882-883 [4].Conclusion The entitlement of JPG as a former trustee is to have the trust assets applied for the purpose of recouping expenditure or exonerating liability properly incurred by JPG in the execution of the trust. The beneficial interest of JPG in the trust assets is correlative to that entitlement. At all times since its replacement by Jaken, JPG has been able to enforce its entitlement as a former trustee by bringing a proceeding against Jaken in the Equity Division of the Supreme Court for final relief in the form of an order for the sale of the trust assets or for payment out of trust funds. At all times since its replacement by Jaken, JPG has also been able to protect its entitlement from being destroyed, diminished, or jeopardised by conduct of Jaken by seeking in such a proceeding an interlocutory injunction or the appointment of a receiver. Jaken is not in a fiduciary relationship with JPG. Therefore, Jaken owes JPG no fiduciary obligation and the remedies of equitable compensation and account are not available to JPG against the third parties. The appeal should be dismissed with costs. This appeal concerns a former trustee's right of exoneration out of trust assets for expenses and liabilities properly incurred as trustee of a trust. Five principles were not in dispute. First, the right of exoneration generates for the trustee an equitable proprietary interest in relation to the trust estate.[55] Second, to the extent of that equitable proprietary interest, the assets of the trust are not held solely for the beneficiaries.[56] Third, the trustee's equitable proprietary interest takes priority over that of the beneficiaries.[57] Fourth, the trustee's equitable proprietary interest survives the removal of the trustee.[58] Fifth, a former trustee of a trust can prevent a successor trustee from dealing in trust assets in ways that would destroy, diminish or jeopardise the former trustee's equitable proprietary interest in relation to the trust estate.[59] [55]Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524 at 544 [32], 562 [85], 579-582 [135]-[142].[56]Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 246‑247 [50]; Carter Holt (2019) 268 CLR 524 at 542 [28].[57]Octavo Investments (1979) 144 CLR 360 at 367; Buckle (1998) 192 CLR 226 at 247 [50]; Carter Holt (2019) 268 CLR 524 at 544 [32], 562 [84].[58]See Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (In liq) (2018) 260 FCR 310 at 344 [142].[59]Jaken Properties Australia Pty Ltd v Naaman (2023) 112 NSWLR 318 at 322 [4], 330-331 [37]; see also Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550 at 561 [50].