Naaman v Jaken Properties Australia Pty Limited ACN 123 423 432 & Ors

No judgment structure available for this case.

[2024] HCATrans 069

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S26 of 2024

B e t w e e n -
ANTHONY NAAMAN
Appellant
and
JAKEN PROPERTIES AUSTRALIA PTY LIMITED ACN 123 423 432
First Respondent
PETER SLEIMAN
Second Respondent
TONY SLEIMAN
Third Respondent
SUPERIOR FAMILY INVESTMENTS PTY LTD ACN 156 135 072
Fourth Respondent
O’MALLEY’S HOTEL PTY LTD ACN 608 025 636
Fifth Respondent
PSJK HOLDINGS PTY LTD ACN 133 251 537
Sixth Respondent
POWERHOUSE CORPORATION PTY LTD ACN 112 759 985
Seventh Respondent

GAGELER CJ
GORDON J
EDELMAN J
STEWARD J
GLEESON J
JAGOT J
BEECH‑JONES J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON FRIDAY, 11 OCTOBER 2024, AT 10.00 AM

Copyright in the High Court of Australia

____________________

MR B.W. WALKER, SC: May it please the Court, I appear with my learned friends MR P. AFSHAR MAZANDARAN and MS N. A. WOOTTON for the appellant. (instructed by KB Legals)

MR J.C. KELLY, SC: May it please your Honours, I appear with my learned friends MR S.V. SHEPHERD and MR A.E. MAROYA for the respondents. (instructed by Jeresyn Legal)

GAGELER CJ: Thank you, Mr Kelly. Mr Walker.

MR WALKER: Your Honours, the right of exoneration for a former trustee to which our client is subrogated depends for its role in the overall litigation, of which this forms part, on the character it bears so as to give rise in due course to a Barnes v Addy liability in knowing receipt or assistance for those who have dealt with the

relevant property contrary to that right of exoneration.

For the reasons we seek to develop in the sequence set out in our oral outline, the conclusion of the trial judge agreed in and amplified by the Chief Justice in minority in the Court of Appeal, to the effect that the nature of the correlative obligation imposed by the existence of that right of exoneration in favour of the former trustee, being the correlative obligation imposed on the current trustee, involves a fiduciary duty, with the proscriptive or negative content that the property in the legal ownership and control of the current trustee must not be dealt with so as to prejudice that right of exoneration.

Now, that right of exoneration has been held by a course of case law that we submit concludes this aspect of the argument to constitute – or generate, I should say – a proprietary interest in the assets of the trust. May I make it clear that by the expression “assets of the trust” we are talking about that property held on trust by the current trustee, we are not talking about the beneficiaries’ interests in that property.

To that end, may I take your Honours immediately to the way this Court, in two sets of reasons to which we draw attention – in Carter Holt (2019) 268 CLR 524 – have dealt with the matter. It is in tab 18 of volume 2 of the authorities. May I go first to the reasons of Justices Bell, Gageler and Nettle at paragraphs 80 to 84. Without reading extensively, may I note that your Honour and their Honours in that passage, particularly paragraph 81, commenced a consideration of what I might call very respectable alternative views of the matter, and having dealt with it, expressed the preference which, in our submission, was already the law but certainly is the law concerning this aspect of characterisation.

GLEESON J: At this stage of the argument, you are not in disagreement with the majority in the Court of Appeal, is that right?

MR WALKER: That is right. If you will forgive me, I hope it is not too leisurely a run‑up – it is not meant to be – we want to make clear that there are foundations which are, in fact, common ground, not controversial, but the strength of the decisions of principle made by this Court declaring the law is such as to, we say, produce the correctness of the final step in the argument, for our purposes – which is the fiduciary duty.

GLEESON J: That is, that the characterisation of the right of exoneration as generating proprietary interest is sufficient for the imposition of a fiduciary obligation?

MR WALKER: That is, probably, putting it too barely. But that I – those are the structural frameworks from which one then builds. Now, as your Honours know, we are then going to move to the – if I may say – studiously open‑textured statements in this Court in a number of cases about the indicia of a fiduciary duty.

GORDON J: Is it a fiduciary duty or a fiduciary obligation? The language might be important here. You may not come to that idea.

MR WALKER: No, your Honour, let me attend to that directly. It suffices for our purposes, which are not, in a sense before this Court, that it was in breach of a fiduciary obligation that the property was dealt with as it was and there was the involvement of other persons in a way that Barnes v Addy picks up. I accept that the words may be important in their distinctions, but one thing to be said at the outset is that “duty” and “obligation” are in many contexts close to exactly congruent, and if there is overlap, the area of different denotation is not one that matters in this case, all we need is an obligation.

There may be aspects of a duty, for example, that do not touch this case, which may test or require close attention to the orthodox understanding that the content of such relations is negative or proscriptive rather than prescriptive – (a) that may be of more interest out of court, in the academy, than in any court ever, but (b) it certainly does not arise in this case because, on any view of it, it is a breach of that aspect of the relation which is negative in nature, not to do certain things.

GORDON J: Thank you.

EDELMAN J: Your submission, as I understand it, does not need to recognise that the current trustee owes a full suite, if one might use that expression, of fiduciary obligations. The only fiduciary obligation that you say arises is the one not to deal with the trust assets to the prejudice of the right of exoneration. There is no question, for example, of conflict duties or profit duties otherwise.

MR WALKER: That is right, but the word “otherwise” is important, because one way to pitch a conflict duty would be, of course, that it prevents you from dealing, to the benefit of you and yours, with the property subject to the right of exoneration so as to prejudice it or render it commercially valueless. But that may be simply manipulating the phrasing. The main answer to your Honour’s question is that is right, that is what we are concerned with. That is because, of course, unlike the traditional categories of relation, there is only one aspect of the relation between the current trustee and the former trustee which is in play. Their only relation concerns the right of exoneration.

GLEESON J: Can I ask about that, because there is also the clause 1.5 of the deed, and there is also the notice. Those are the things that I am worrying about. Why is it that you are confining yourself to the significance of property interest for the identification of the fiduciary obligation?

MR WALKER: The deed, we submit, does not add materially to the content of the negative obligation – that is the first thing. It is, obviously, significant – we do not mean to ignore it – but it operates, as it were, concurrently. I do not know that this a confinement, but rather, in the nature of the case – and in the nature of all such cases – our complaint concerns violation of our right of exoneration.

We do not have a common law duty owed to us. There is no obligation in debt binding the current trustee. That is the meaning, in particular, of the generalisations that have been expressed from time to time disclaiming any personal liability of the current trustee to the former trustee in respect of these liabilities that are to be discharged by the former trustee but with exoneration against the trust assets.

It is for those reasons, we submit, that ours is not a case – by reference to the deed or any other circumstance – where we can point to anything other than the violation of our right of exoneration as that disturbance of the intended relation – I should not say “intended” – that disturbance of the relation imposed by law between current trustee and a former trustee as giving rise to the question, critical for our Barnes v Addy ambitions, was that obligation fiduciary in nature?

EDELMAN J: Well, you do have the aspect of notice as well. That may be significant in a circumstance where, for example, a subsequent trustee owes a right of exoneration which, at the time of assuming trusteeship, has no substantive content because there are no apparent creditors of the trust. Now, there may be a latent claim that is later brought, but before that latent claim is brought, one would not usually think of the current trustee as being under a fiduciary obligation to the holder of a right of exoneration which potentially has no content.

MR WALKER: The short answer, which requires elaboration, is yes, that is right, but can I explain. It is a common place that the size or extent of a trust estate available to the beneficiaries may not be able to be ascertained and is a known unknown. That is, there are circumstances in existence which mean that there will be a legitimate depletion of the trust estate so as to deplete the value of the beneficiaries’ interests which will become known in the future, and that is commonplace, and not only, obviously, in insolvency.

That is also true, obviously, with respect to the right of exoneration. A retiring trustee leaves records or positively informs the incoming trustee that there is, in train, completion of building works, which will in due course involve a payment yet to be ascertained, but that there is an argument with the contractor which may lead to abatement or set-off, and so that there will be, perhaps, years of dispute resolution before it is known how much money the outgoing trustee is entitled to have supplied by way of exoneration from the trust estate.

None of that casts the slightest doubt on the fact that the circumstance of being an incoming trustee where it is known that there have been dealings of a kind which either, of their nature, or specifically as a matter of known history may give rise to such a claim by a former trustee. No one could doubt, surely, that at that point there are negative obligations not to deal with the property – to take the most extreme example, for example – so as to transfer the whole of the legal title to the whole of the trust estate to beneficiaries on the basis that they can call under Saunders v Vautier, because it would be, in our submission, as a matter of claim doctrine, an answer to a call under Saunders v Vautier that there remains, unadministered the trustee’s – the current trustee’s – obligation to permit the former trustee to be exonerated from the property, and it would be, therefore, the familiar and by no means disturbing phenomenon of a known liability, contingent either as to its existence or, more frequently, contingent as to its financial scope.

None of that, however, would defeat the proposition that that right of exoneration not yet capable of being – if you will forgive the metaphor – crystallised in a money figure, nonetheless exists to the extent that it can said that the current trustee holds the assets not only for the beneficiaries in terms of the trust but also so as to ensure that that right of exoneration will be able to be fully met.

STEWARD J: I think that is what this Court in part said in CPT Custodian.

MR WALKER: Yes.

STEWARD J: The doctrine in Saunders v Vautier cannot be exercised whilst the right of exoneration is not discharged.

MR WALKER: That is right. In other words, it is not true that in equity it is all to the beneficiaries beneficially so that it can – must all be transferred to them in law because some of it – we do not yet know how much, in such a case – will be the outgoing trustee’s by way of exoneration. That is why, in answer to Justice Edelman, after the initial affirmative, one needs to say that in the run of cases, one would expect that it will be known that there be something requiring exoneration before it is known in exactly what amount that will be.

GORDON J: I think the point, as I understood the question – can we just flip it for the moment? The question here is, what is in issue in this case? On the facts of this case you have unchallenged findings that the controllers – I use that in a generic sense – of both the former trustee and the new trustee, knew of and then undertook a scheme to strip the assets in order to prevent the creditor with the right of subrogation getting what he was entitled to.

MR WALKER: Yes. That is right.

GORDON J: So, when you have those facts – do we have to worry about the broader question?

MR WALKER: I do not want your Honours to worry about any of those questions, because they are not necessary for our case.

GORDON J: I think that is what I am putting to you.

MR WALKER: Yes. But, may I say, that we, respectfully – because there are other views ‑ ‑ ‑

GORDON J: Yes.

MR WALKER: ‑ ‑ ‑ we respectfully doubt whether these are deep waters. For the reasons that I have just been trying to put, you do not need to know the actual amount in order to know that your predecessor trustee has a good claim – and, if I may put it this way – of a kind that the current trustee should bear in mind they may well need themselves.

BEECH-JONES J: Are you saying it is no more complicated than dealing with a contingent liability, effectively?

MR WALKER: That is right, that is right. So, the word “notice” is, in our submission, a shibboleth in this case. You first have a notice – of what? We understand our friends – and, indeed, Justice Leeming’s reasoning – deploys that against us to doubt the existence of the whole right having a fiduciary quality in the obligation it imports. We tackle that head‑on by saying, as in this case, there could not be the slightest doubt that the wrongdoers – or, as at law school they called them, “the rogues” – in this case well knew what kind of claim would be coming; well understood how subrogation would produce the character of the person wielding that right; and set out, in ways that the trial judge has excoriated, in detailed findings – set out in the most elaborate way – recalcitrant, over years, to defeat that right.

In our submission, the fact that a case of such depraved commercial conduct is not to be found in the books previously is simply to say, mercifully, most people would never dream of acting like this – or if, at first detected, would stop and conform their conduct to the obligations that bind.

It is for those reasons that we say notice does not matter; that is my last proposition, and I do not really need to – it will develop when I come to it. Notice does not matter because of the content at the findings in this case. But I do accept that the doctrinal challenge to us that we need to persuade your Honours includes error on the part of the majority in the Court of Appeal, does involve a measure of consideration of the nature of notice.

Can I, first of all, tackle that by saying the assumed test so as to produce doubt about the fiduciary obligation is of a case where the claim comes utterly out of the blue. Now, let it be first pointed out that for there to be a claim at all there has to be a trust estate, that is, a trustee with assets held on trust; that is the hypothesis upon which all these cases depend, namely, it is a right to be exonerated from the trust assets. So, there need to be trust assets – so, there are assets held on trust.

Let it be assumed, however, that the current trustee says, my goodness, this million dollars has come out of the blue, accepting its legitimacy as a liability you incurred, properly, for which you are entitled to be exonerated – speaking to the previous trustee – we now no longer have that amount of money; we are a trading trust, we have suffered downturns in the market, we have done everything legitimately and we could not possibly sensibly serve the interests of the beneficiaries by having, as it were, gone out of business just in case something may come up, of which we knew nothing. That is utterly unrealistic.

BEECH-JONES J: Mr Walker, what about a trust that held a shopping centre, and a personal injury case comes out of the blue six, seven years ago, later?

MR WALKER: Your Honour, I am trying to deal with some such case in the example I have given. It would not be a matter of notice being, as it were, constitutive of the duty, but rather that an absence of notice – and this is equity operating, so it is the facts of each case that will drive the outcome – but absence of notice, genuine absence of notice, really out of the blue – impossible to imagine, by the way, in practice, for a trading trust, but in any event, imagine the company books simply do not have anything at all and that the commercial experience of those advising or actually acting as trustee does not include any understanding of the way in which statute of limitations can permit claims to be made, et cetera.

Let us assume all of that, for the sake of argument. Obviously enough, there would be – not at the point of saying, well, there is no duty, no obligation, that would be to throw the baby out with the bathwater, but rather to say, in the absence of notice, there may not have been a breach. And further, as a refinement or, perhaps, outgrowth of that proposition, and if there were a breach, it is one where the remedy and the availability of the remedy is affected, perhaps eliminated by, on the particular facts of the case, equitable reasoning in the nature of acquiescence or laches.

GLEESON J: So, you are saying that the existence of a former trustee – the fact of a former trustee – with the consequent right of exoneration gives rise to a fiduciary obligation unless and until the successor trustee is told that that right has been fully discharged.

MR WALKER: In effect, yes. That is, it comes about – it is an obligation binding the current trustee with respect to his, her or its dealing with the trust assets.

EDELMAN J: But once you accept that, in the example the may or may not be extreme – the shopping centre‑type situation – that there would be no breach, it comes very close to saying that in the interregnum before there is notice of the claim, the duty had no real content ‑ ‑ ‑

MR WALKER: No, your Honour.

EDELMAN J: ‑ ‑ ‑ because if one looks at it from the point of view of Justice Finn, and before that, Professor Finn’s analysis that the content of the fiduciary obligation is determined by the reasonable expectations of a person in the position of the fiduciary, well, a person in the position of the holder of a right of exoneration would not have any real expectation that the assets would be dealt with in their interests whilst there was no possibility of any real claim that they would have to the assets.

MR WALKER: Your Honour, that is not so much depriving it of content as simply saying that the evident content, which is not to deal with the asset so as to prejudice the right of exoneration, is, in a familiar way – and this is familiar both in common law and in equity – affected by the facts of the case as to whether you have in fact so acted. Now, reasonable expectation in the sense that Justice Finn – I think, really, when Professor Finn was writing about these matters, does not alter the fact that the duty springs up because of the fact that there is a former trustee, the fact that there is a trust estate held by a current trustee and that exoneration is inherent in, endogenous to, the relation of all trustees to the trust estate in priority to the rights of the beneficiaries.

In our submission, there is nothing disturbing, as a matter of doctrine, in saying that the duty springs up but factually you will not be acting in breach of it if there is, for example, no reason whatever to suppose that there will be any appreciable claims from expenditures for which the former trustee was liable. One would imagine in fact, particularly when what I might call commercial people are the former trustee, the current trustee, the beneficiaries and those advising all of them, one would imagine, as you can see and remember from practice in relation to the deeds that often accompany these manoeuvres, that there can be disclosures of best awareness of the state of affairs.

In any event, corporations are rarely absent from these arrangements and there are statutory obligations with respect to the books of a company so that, in practice, the notion that the law – your Honours, as deciders of the law – would be, so to speak, wary of imposing duties on poor current trustees where nothing is known about the financial extent of the right of exoneration when they take over, should not have any weight whatever; it is in the nature of taking over a trust estate that the right of exoneration exists, and, as I say, it would be an odd current trustee who would not contemplate that he, she or it may one day become themselves a former trustee.

So that the existence of that right of exoneration, utterly well understood, and as a matter of the policy of the law on the chancery side, centuries old in encouraging persons to take on and faithfully discharge the onerous obligations of a trustee, those, in our submission, simply come with the territory. Then you deal with the fact, well, what if you do not know about a particular amount? It is the facts of the particular case which will determine whether or not, and by the requisite standard – supplied perhaps by a reasonable expectations basis, supplied probably simply by nothing more than an appropriately equity‑informed prudent approach to reasonableness – as to whether or not the current trustee has acted in a way that truly is in breach of the proscription against prejudicing the rights.

BEECH-JONES J: Mr Walker, Chief Justice Bell at paragraph 25 of his judgment described the scope of the duty as:

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 –

MR WALKER: Yes.

BEECH-JONES J: So, is what you are saying is, that duty is not in danger of being breached unless and until, on the facts known or ought to have been known by the new trustee, that right of indemnity is, in fact, in danger of being jeopardised?

MR WALKER: In essence, yes. But I need to be cautious – and I think your Honour’s question to me does embrace this – it is all driven by the facts. When your Honour talks about “known or ought to be known”, it may be that that is too prescriptive – a description of the relevant state of affairs. It captures the core of the concept that we would seek to persuade your Honours will suffice.

But my endeavour, of course, is to repel the argument that because there will be some cases where pity is felt for the later trustee because of something coming out of the blue, and other cases where there is no particular sentiment because it is in the nature of things and the trading history of the corporation, et cetera – of the trust, I should say – that there would be rights of either indemnity or, in this case, exoneration in play. That range is a range supplied by facts. It is not something that casts any doubt upon the doctrinal soundness that the right of exoneration is something which has to be protected by all current trustees.

GORDON J: I think I put this to you earlier, Mr Walker, but your argument is, here, on the facts.

MR WALKER: Yes.

GORDON J: Whatever way you slice and dice it, one has a fiduciary obligation.

MR WALKER: Yes.

GORDON J: You have facts known to the controllers of both the former trustee and the current trustee ‑ ‑ ‑

MR WALKER: That is right.

GORDON J: ‑ ‑ ‑ whether they are the same people, and they take steps knowing of it? That is, the debt?

MR WALKER: Yes.

GORDON J: Knowing of the right of exoneration for that debt?

MR WALKER: And consciously intending to defeat it.

GORDON J: And the findings made by the primary judge, upheld on appeal, that steps were taken to defeat it.

MR WALKER: Yes. That is why, in our submission, as a matter of – if I may respectfully put it, thus – judicial technique, noting this area of possible disputation in another case, your Honours should not go on to give, so to speak, anything in the nature of a definitive disposition on the role of so‑called “notice” or other matters related to that concept in relation to the right of exoneration.

Now, I suppose I would say that because we do not wish to be defeated in our ambition to have this obligation held fiduciary in nature by an such argument about the supposedly‑nebulous quality of a requirement for notice. We say no, probably the Court will never be in a position to lay down, as it were, prescriptively, a checklist for something under the heading of “notice” in the same way as has rather self‑defeatingly been attempted with respect to the possible sources of imposition of a constructive trust. We do not need to get into that, because in this case, if there be any such requirement, it is amply supplied in spades.

So, my efforts in this regard are to start with a proposition: nobody says there is no right of exoneration because of nebulous problems of notice. Nobody says that. The only question is, given that that right of exoneration, as Justice Leeming puts it, has in, if only, perhaps a Hohfeldian sense, a correlative obligation on the current trustee, there is no doubt there is some kind of a duty. Not a personal duty in the sense of debt or the like, but a duty concerning how the current trustee holds and deals with the trust assets.

In our submission, the only question upon which we failed on the majority reasoning of the Court of Appeal, the only question, is whether or not that duty is, by reason of qualities to which I am about to come, fiduciary in nature. The fact that, self‑evidently, we are not litigating for the sake of doctrinal purity or academic curiosity, obviously we are litigating in order to obtain actual recompense for the roguery that has occurred from people who have, in the eyes of equity, sufficiently benefited in such circumstances as to give rise to Barnes v Addy liability without the difficulties that sometimes attend tracing. Now, I am not saying that tracing is not available, but we are talking about Barnes v Addy. None of that is an answer to the question: is this fiduciary?

GORDON J: That is really the elephant in the room. That is, it seems, on the reading of the majority’s reasons, the availability of the alternative remedies seem to have at least informed part of the analysis.

MR WALKER: Yes, and, with respect, that cannot logically survive concurrent obligations. Imagine a thieving solicitor – there would be multiple ways in which he or she may be liable, and the fact that tracing may be available in some circumstances cannot possibly say you cannot get a Barnes v Addy against his or her spouse for what has been passed on from the debauched trust.

GORDON J: So, the answer is ‑ ‑ ‑

EDELMAN J: Well, there is – sorry, Justice Gordon.

GORDON J: No, you go ahead.

EDELMAN J: There are really two quite different questions, are there not? One question is whether any duty that is owed is fiduciary, and the other one is what the content of that fiduciary duty is.

MR WALKER: Yes.

EDELMAN J: On the first question, as I understand your point, it is really no more complex than the fact that there is a right of exoneration must mean that there is a correlative duty that is owed by the party who has the benefit of the right of – it is owed to the party who has the benefit of the right of exoneration, and as soon as someone owes a duty, whatever the content of it may be, in relation to assets for the benefit of another person, that characterisation of the duty should be fiduciary.

MR WALKER: Yes, without qualification.

EDELMAN J: You then say, well, the content of that duty should be left for another day, without dealing with questions of whether the content includes issues of notice or otherwise.

MR WALKER: Yes, and I would footnote that last proposition by saying content or, if it be different, the question of breach. One is reminded of – I will not say exact analogues – in the concepts of scope or content of the common law duty of care and questions of breach.

Now, in paragraph 37 of Justice Leeming’s reasons at page 197 of the core book, there is that passage to which I had earlier made reference. That is one of the places, and the most striking place, where of course his Honour accepts, as must be the case, that the right of exoneration produces a correlative duty or obligation, and the only question is whether it has qualities that properly produce its description not by way of simile, but precisely, as fiduciary.

STEWARD J: Can I ask you a related question, Mr Walker. Leaving aside rights against third parties, is the indemnity that was given in the deed of appointment and retirement on all four squares as the fiduciary duty that argue for?

MR WALKER: Yes. That is an indemnity that either recognises – it depends upon the sophistication of those who drew it, of course – what the general law created or ‑ ‑ ‑

STEWARD J: So, it is either declaratory of us?

MR WALKER: Yes.

STEWARD J: Yes.

MR WALKER: That is why we have not put that to the forefront. Not because it is not important, but because we are of that characterisation and we do not wish to advance this case on the basis that it just so happens that that text, agreed between people, produces a fiduciary obligation. We want to go further and say that is because that text is in relation to, in this case, a right of exoneration, or previously an indemnity, which is precisely of the kind that produces a fiduciary characterisation. The next step – and I have covered a lot of my propositions, now, in how I have answered some of your Honours’ questions ‑ ‑ ‑

BEECH‑JONES J: Mr Walker, paragraph 37, is that any different to saying that someone who owns property where someone else has an equal interest in it can be ordered by the court to do something and that can be seen as an obligation or a duty?

MR WALKER: That may be what Justice Leeming is intending by it, but in our submission, that ‑ ‑ ‑

BEECH‑JONES J: I know you do not accept that, but is that ‑ ‑ ‑

MR WALKER: I think, with respect, that is how his Honour intends that to be read.

BEECH‑JONES J: Right.

MR WALKER: But that what might be called minimalist view simply does not deal with that which in particular the Chief Justice notes, but Chief Justice Bell was not doing anything novel, he was applying the approach, we think, accepted in this Court in the admittedly not exactly mapped test for whether an obligation is fiduciary or not. In our submission, there are two steps in that reasoning. I am going to try and conflate some of the propositions in our written outline because, as I say, I have dealt with a deal of it in answer to your Honours.

In proposition 2 we note the significance, as we would put it, of the priority which equity gives to the right of exoneration over the interests of the beneficiaries. And so, it does not matter that the trust deed, for example, says the trustee shall hold the whole of the assets for the beneficiaries, full stop; equity says, subject to the prior satisfaction of rights of exoneration.

Now, that is a significant step in reasoning, and it is not controversial. It is a significant step in reasoning because it shows that the assets are held by the trustee not wholly for the beneficiaries, even if that is what the trustee said. That is obviously of great moment because there is, for the current trustee, the right of indemnity which, even without mention in a trust deed, would take priority to the rights of the beneficiaries.

That is the trustee having, as it were, a legitimated self-interest in the interests of the policy of the law advanced over centuries to protect those people who take on the useful but onerous position of trustee. Now, in our submission, once there has been the succession – that is our proposition 3 – obviously the person, now former trustee, no longer holds the assets so as, by way of indemnity or exoneration, to protect them from the personal losses of meeting the liabilities which are trust liabilities.

That is why there springs up at that point of the transfer of the assets, from former to current trustee, that is why there springs up then a state of affairs which is irresistibly to be characterised as the current trustee holding the assets not only for the beneficiaries but also for the previous trustee to the extent of any exoneration that the facts render appropriate.

And that is the familiar case, in our submission, contemplated by the uncontroversial, uncontested law in this country which we set out in our proposition 3 that the right of exoneration and the proprietary interest that is generated by it are not detracted from or fatally diminished or affected in any detrimental way by the succession. Or, to put it another way, the dominion which legal ownership gives a current trustee which enables the trustee, as it were, there and then to supply by way of indemnity or exoneration from the assets without, as it were, consulting anyone except conscience, that has gone, and that is not to in any way reduce what is called the proprietary interest generated by the right of exoneration.

It being proprietary means that it is a proprietary interest requiring recognition and protection by that person who holds the asset in which that interest continues. That, of course, is the former trustee with a right of exoneration. At that point, we have reached, in our submission, the familiar position that we submit is the threshold, really, of the conclusion that this is an obligation fiduciary in nature.

STEWARD J: Mr Walker, is it your case that you say the proprietary interest is insufficient? Equity would say that because of the risk of unknown dissipation by the new trustee?

MR WALKER: We do not – you will have noticed that proprietary interest is not, as it were, the be‑all and end‑all for us. The fact it is proprietary interest is very important for the next step in the argument, namely, that the current trustee holds the property of another. That is, or holds the assets subject to the proprietary interest of another, just as they hold the assets subject to the proprietary beneficial interest of the beneficiaries. But there is a priority, obviously, for those in our position, over the beneficiaries.

Now, the fact that there are then, obviously, duties not to prevent the right of exoneration being enjoyed that easily satisfy the current understanding that such obligations or duties need to be negative, proscriptive – no issue in this case – and, in our submission, also lead to the next steps concerning the nature of the obligation being fiduciary. We have drawn to attention in the authorities we have cited for our proposition 4, if I may respectfully call them some of the classical passages. I will not take your Honours to them, because they are so familiar, but in both Chief Justice Gibbs and in Mr Justice Mason – who in the actual outcome differed from the majority – there are passages that have borne repetition and useful application thereafter.

They are both characterised by a very clear unwillingness to be definitive, to pronounce rules à la the common law, but in our submission there are distilled essences – to adapt a phrase of Sir Anthony Mason – to be found in the cases their Honours discuss, and nothing in subsequent jurisprudence, in our submission, justifies a departure.

We have drawn to attention, by citing them, the different case but with some significant common elements arising upon a mortgagee sale with surplus proceeds in the hands of the now‑satisfied mortgagee conducting the sale. This Court in Bofinger 239 CLR 269 in the passages we have drawn to attention makes it crystal clear that that money is held for another. Justice Campbell in Esber 80 NSWLR 69, paragraph 144, in the passage to which we draw attention – again, I really do not need to take you to the passage – is, in our submission, and with great respect, a thoughtful explanation of why not only in his Honour’s view that which was held in Bofinger followed from authority but, more to the point was straightforward to explain as a matter of principle. We respectfully adopt that aspect in particular of his Honour’s reasoning. This is not abstruse or arcane law, and it is properly informed by an intuition about the justice of the situation.

That is why we say, in proposition 5 – when one goes to those classic passages in Sir Anthony Mason and Sir Harry Gibbs – that there is an affirmative answering of the criteria of, in this case, the property being held for another requiring to be dealt with in the interests of the other, not by way of active stewardship – we are not talking about a bailiff – but in the proscriptive sense that the right of exoneration is not to be prejudiced by what might otherwise be either permitted or required by the exercise of trust duties.

That, in our submission – together with the somewhat problematic but nonetheless relevant consideration of so‑called “vulnerability” – that ticks the boxes for this to be fiduciary in nature. There is a subjection of the holding trustee – the current trustee – to the interests of the former trustee so that the current trustee cannot deal with the assets to the detriment of the interests of the former trustee in them which is limited to the right of exoneration.

That taking on of an obligation to serve and protect the interests of another without self‑interest intruding is, in our submission, an indication as to why, in this case, the principles considered in Hospital Products will produce straightforwardly a fiduciary characterisation.

BEECH‑JONES J: Mr Walker, just for my understanding, you take the duty identified in paragraph 37 – albeit a different type of duty – you add in the priority afforded to that as against the beneficiaries and add the vulnerability of the former trustee?

MR WALKER: Yes. Now, I had said “problematic” for “vulnerability” because learning in and out of court warns that that is not to be taken as a touchstone in itself.

BEECH‑JONES J: Not sufficient nor necessary.

MR WALKER: But it is, in our submission, as an ordinary English word, a description of the relation of what I will call superior control over the outcome of possible circumstances. It is a badge, one of the badges, one of the indicia, of the obligation owed by such a person as being fiduciary, and one obviously calls in aid the fact that we do not think it is doubted that the obligations owed by a trustee to the beneficiaries with respect to the trust assets is fiduciary in nature. I do not know whether it is still the case, but it used to be the first of the categories that lecturers tried to introduce to young people learning about fiduciary obligations.

We do not think, for the purposes of this case, there needs to be any qualification to the proposition that for the beneficiaries, the obligation owed to them – if you like, negative in quality, not to debauch the trust estate – is fiduciary. There are other aspects to fiduciary obligations, including what might be different, or differently applicable, duties of avoidance of conflict, that is, the loyalty. But for present purposes, with respect to damage to the estate, no one doubts that that is fiduciary.

As Chief Justice Bell has noted, and in particular, we have drawn attention to – I do not need to read it to you – paragraph 6 of his reasons at pages 184 to 185 of the book, the compelling mode of reasoning is that if this interest, by way of exoneration with its correlative obligation not to prejudice it, is preferential in the sense of requiring it to be honoured in priority to the rights of the beneficiaries, then it is difficult, as a matter of intellectual symmetry or policy coherence, to understand why there would be any difference in the characterisation of that obligation as fiduciary from that which uncontroversially and authoritatively obtains in the case of obligation owed to beneficiaries.

In both cases, the trustee has, through the legal title, the right and the capacity to control of the disposition of the property. In both cases, the beneficiaries and the former trustee seeking exoneration are, in that sense, vulnerable. That is, it is the powers of the legal owner which require the imposition of the proscriptive duties that, though the trustee has all those powers, they are qualified by the need, enforceable in equity, to observe those restraints. Now, that is exactly the same for both the beneficiaries and for the former trustee seeking exoneration.

I think I have already dealt in some answers, with proposition 8, but can I just note in proposition 9 by the way, so to speak, or in anticipation, the Privy Council reasons in Halabi [2023] AC 877 is, in our submission, devoid of any support for some rule, as it were, or principle against characterisation of the current trustee’s obligation to protect the former trustee’s right of exoneration as fiduciary.

GLEESON J: Mr Walker, would you disagree with the idea that the right of exoneration implies an undertaking of the kind that is in clause 1.5 of the deed and it is that undertaking which really signifies the fiduciary obligation?

MR WALKER: Yes and no – (a) it does, but it is not only that. So, yes, of course that is a powerful explicit recognition between the parties of the nature of an obligation which, we would say, in accordance with ‑ ‑ ‑

GLEESON J: I guess what I am asking is, given that we need more than a proprietary interest – that is, being held by the successor trustee – is really the crux of it the implied undertaking not to deal with the trust assets?

MR WALKER: Yes, yes, it is. All I am saying – and I do not mean to be refuting anything your Honour has suggested – is, if that did not exist, the result would be the same and it would not be an undertaking based upon text, it would be an undertaking imposed by the law.

GLEESON J: Yes. What I am just really trying to clarify in my own mind, whether the restraint that you are referring to is really an undertaking that is implied from the right of exoneration.

MR WALKER: That is right – or inherent in, in our submission. How do you honour another’s right of exoneration by feeling no restraint in dissipating the assets? That is the point.

GORDON J: Could I ask a question about Halabi that you just referred to.

MR WALKER: Yes, your Honour.

GORDON J: Is it the position – you say it says nothing about the relationship, is that because it was dealing with competition between trustees?

MR WALKER: Yes. So, that was the, no doubt, intensely important inquiry in Jersey about being paid things as professional trustees.

GORDON J: It is core business.

MR WALKER: And Jersey law is different, even as to some fundamentals concerning the position, none of which is worthy of exploration in our argument because it simply does not advance either position. It is of currently academic interest only. Now, it is for a striking set of reasons because, at least in my memory, I think it is the most numerous thoroughgoing, deep and respectful exploration of Australian case law I can remember ever seeing, and no doubt the identity of one of the members of the court explains that.

It suffices to say that the one matter that Justice Leeming raises – and I do not need to take you to it, but it is in paragraph 137 at core appeal book 232 – namely, that the pari passu conclusion of the majority in that case as between what I will call competing trustees with their hand out for exoneration from an inadequate fund, that does not, definitionally or at all, contradict the fiduciary nature of the obligation that the current trustee has with respect to the holding of the property and the rights of exoneration pari passu to be enjoyed from an inadequate fund of former trustees together with, one may say, the current trustee.

To put it another way, a trustee obviously can have self‑interests of a kind that an express trust permits – for example, in fees as well as just expenditures – without that self‑interest being such as to deny the fiduciary quality of the obligation to hold the trust assets on the terms of the trust, faithfully in the interest of the beneficiaries, subject to, of course, the law enabling that trustee to render monthly bills for fees. Pari passu requires, as it were, an even hand – literally – by the current trustee in dealing with the claims of his, her or its predecessors for exoneration, and that is a classic case, in our submission, of an obligation, negative in quality – namely, not to damage any of their respective rights of exoneration, which is fully consistent with, indeed redolent of, a fiduciary quality.

Your Honours, finally, in – I have dealt fully, I think, with proposition 9. Proposition 10 is not a step in the argument, but it is, if only rhetorical, surely inappropriate to say of this case – with this extraordinary depravity of facts – that because you will not find something like this in the books, therefore the response of equity to the position of the trustee seeking exoneration should be regarded as some inappropriate step into unexplored territory.

The way equity, and common law for that matter, proceeds is to try to distil the essence, as Sir Anthony reminded everyone in Hospital Products. The essence plainly, in our submission, is that these are assets that were held by the trustee not only for the beneficiaries but also for a trustee formally in office with a right of exoneration, thus fiduciary.

May it please the Court.

BEECH‑JONES J: Mr Walker, just before you step down, can I ask you a couple of questions, just because I think these were picked up in the majority of the Court of Appeal. So far as timing, does it follow from your submissions that the duty arises on the appointment of the new trustee?

MR WALKER: Yes.

BEECH‑JONES J: Then the questions about what is required of it are all fact‑dependent, depending on what is known.

MR WALKER: Yes.

BEECH‑JONES J: Generally, do you say, well, it does not step a distribution to beneficiaries, it just means the trustee must make some assessment but what the other competing and perhaps greater priority claims on the trust assets are?

MR WALKER: Unlike most of us, in most cases, they can get judicial advice.

BEECH‑JONES J: Yes.

GORDON J: They can also carry on business in the ordinary course of business.

MR WALKER: Quite, quite. That is why it is so fact‑specific. Presumably, in what I might call honourable dealings between honourable people, there would be inquiry before perhaps a large distribution, by way of vesting was proposed of everybody involved as to whether this will endanger any right of exoneration. Mind you, it is not easy to imagine many trustees, let alone what I might call professional trustees, let alone trustees controlled by people who are also, as it were, present economically on the beneficiary side – it would be difficult to imagine many cases where they sit on their hands with respect of rights of exoneration. So, in our submission, yes, it is clear the duty obligation is imposed by dint of holding the trust assets.

If it please the Court.

GAGELER CJ: Thank you, Mr Walker. Mr Kelly.

MR KELLY: In our respectful submission, the question of whether there is a fiduciary obligation to be found as between the successor and former trustee, in this case or any other case, depends upon the nature of the relationship. To examine the nature of the relationship, one needs to take into account all of the facts and circumstances which bear upon it, including a contract such as the deed of trust and the surrounding statutory environment, in order to ascertain in a nutshell whether there is, firstly, an obligation, and secondly, whether that obligation has a fiduciary character.

EDELMAN J: That might be regarded as a very controversial proposition, in the sense that there is a number of authorities that treat the existence of a fiduciary relationship as something that arises when one or more fiduciary duties are owed, rather than the other way round, which is, as I understand you are putting it, that one looks to find a relationship and then a whole suite of fiduciary duties then just spring into being.

MR KELLY: Well, one looks at, we say, all of the facts and circumstances. We would not embrace either of those competing theories as determinative of anything. One looks at ‑ ‑ ‑

EDELMAN J: But one looks at the facts and circumstances to determine which duties are owed, and some of those duties might be fiduciary, some might be non‑fiduciary. If the facts and circumstances reveal that fiduciary duties are owed – one or more – then one might characterise the relationship as fiduciary, then.

MR KELLY: Yes, of course, your Honour, but at the same time, the single fact and circumstance which cannot escape full and proper attention is the relationship. In this case, the relationship between a successor and former trustee, in our submission, is properly characterised as that of an equitable chargee and chargor. Significantly, my learned friend in his address, did not refer to the concept of a charge at all or a lien at all.

Nor does the fact that there is a charge and a lien, arising specifically out of the fact and circumstance that a successor trustee takes possession of the trust property, subject to the rights, including the properly characterised proprietary right of the former trustee. That close matrix of fact, in our respectful submission, is of considerable significance when it comes to determining what rights and duties are applicable and whether any of them are truly characterised as fiduciary.

It also bears upon the coming and going of any duty. As we would put it – perhaps with undue simplicity, but nevertheless, we say, supported by considerable authority – the relationship between a successor and former trustee is that of an equitable chargor and chargee to the exclusion of any applicable or analogous relationship of trustee and beneficiaries. In the present case, for example, there are in existence earlier declarations and orders to the clear effect that that is the proper characterisation of the relationship. In our respectful submission, in the face of those declarations and orders, there is no room to superimpose a duty or a relationship in the nature of trustee and beneficiary in relation to any of the subject property. May I take your Honours quickly to ‑ ‑ ‑

GAGELER CJ: Are you making something of the relationship being embodied in a declaration? Does that give it some extra status here, or are we concerned simply with the nature of the relationship?

MR KELLY: We say that the declaration answers the question that the nature of the relationship is that of equitable chargee and chargor and that it having been so declared by order of the court and acted upon – because, as your Honours appreciate, the appellant moved for the appointment of a receiver of one of the properties, O’Malley’s Hotel, and was granted that relief – the declarations and the grant of that relief, in our respectful submission, are entirely orthodox and they conform to proper principle.

GAGELER CJ: I understand that, but are you saying that there is some estoppel that arises by virtue of the declaration? That is my question.

MR KELLY: An estoppel by judgment? Yes. There is a declaration to that effect, and my learned friend is now moving to say that the true characterisation of the relationship and the holding of property – relevantly, the property made the subject of right of exoneration – that is to say, the proprietary interest generated by that right is property which is held by the successor trustee for the former trustee. Hence the basis of his argument, he says that in terms in paragraph 23 of his written submissions, but he now moves to the position which we respectfully submit is the correct position, and that is that the successor trustee holds the assets of the trust subject to the former trustee’s equitable charge.

GORDON J: Mr Kelly, may I just ask a question. At core appeal book 160 we have the primary judge’s declarations which deal with equitable lien or charge.

MR KELLY: Yes, your Honour.

GORDON J: Those answers to those questions were set aside at page 276 and replaced with an answer, as I understand it, and if I have got this wrong I would be grateful if you could just tell me what the current state is that there was standing to sue but they do not arise because no duty was owed.

MR KELLY: Order 1a is the order, which ‑ ‑ ‑

GORDON J: This is on page 160?

MR KELLY: At page 160:

Mr Naaman, having been subrogated to the rights of Jaken Property Group –

That is the former trustee:

by the declaration in paragraph 6 of the orders of Young AJ dated 22 February –

in those earlier 2009 proceedings:

had and has an equitable charge or lien over the assets from time to time of the Sly Fox Family Trust –

GLEESON J: That is not a declaration about the relationship between the former and successor trustees, is it, it is just a declaration as to the nature of the property right?

MR KELLY: That is certainly true, your Honour. I would need to take your Honour back, of course, to the declaration which is the foundation in paragraph 6 at page 46, but the bottom line is that this order establishes, we say, that there is in existence an equitable charge or lien over the assets for the time being of the trust and that that ‑ ‑ ‑

EDELMAN J: Mr Kelly, you would accept, I take it, that there are a variety of different circumstances in which an equitable charge can arise.

MR KELLY: Yes.

EDELMAN J: Do you go as far as to say that a chargor can never owe a fiduciary duty to a chargee?

MR KELLY: We go so far as to say that an equitable chargee or lien‑holder has a proprietary interest of a particular type over, in this case, all of the assets from time to time of the trust, but we do not go so far as to say that there could never be a circumstance where that party also has a fiduciary obligation. What we say is that the charge gives one the proper characterisation of the relationship so far as the right of exoneration is concerned. It is the charge which provides the proprietary interest in the assets, and that so far from that proprietary interest being properly characterised as property held for the former trustee, such that the former trustee is vulnerable and subject to all of the other considerations that my learned friend has shortly addressed, the position of the former trustee is superior in the sense that it, by reason of that charge, is in a position to cause the property to be sold or for a receiver to be appointed.

This is not a case in which one approaches the question coloured by events said to amount to a breach. One needs to look in a disciplined fashion, in our respectful submission, at the nature of the relationship to see if the relationship – with particular reference to the right of exoneration, because my learned friend is putting his case now on the basis that it is the protection of that right of exoneration which is determinative of there arising not only a duty – one describes it as of Ophelian or correlative variety or use some other label – but my learned friend says that it is that duty which attracts a fiduciary character without regard to – indeed, ignoring – the correct legal position which is that the former trustee has his proprietary interest in the assets and the right to protect them by moving for the appointment of a receiver or an order for judicial sale, or interlocutory protection if needs be.

In that way, a party who holds property subject to somebody else’s superior security interest or rights is in a position not dissimilar from that of a mortgager who holds property, mortgaged, when the mortgagee has all necessary powers to protect its position; and it is completely antithetical to the relationship to impose upon a mortgager a fiduciary obligation to a mortgagee, and in exactly the same way it is antithetical ‑ ‑ ‑

EDELMAN J: Until surplus proceeds are received.

MR KELLY: The surplus proceeds example is completely different. In the event that surplus proceeds are produced, there may well be competing claimants on that fund. Indeed, your Honours are aware that in this case, Mr Naaman has separate proceedings against the National Australia Bank in which he asserts that the bank, having appointed its receiver and sold, albeit the hotel and the hotel business, albeit with a shortfall – that the bank holds property which is subject to his charge.

My point is that one simply cannot simply ignore the existing body of law which establishes the charge or lien which expounds the nature of those rights, for when they are taken into consideration, the charge negatives all of the considerations that might otherwise are thought to make or to justify a fiduciary obligation – the boot is on the other foot, so to speak.

GAGELER CJ: Mr Kelly, may I interrupt. We have a practice of taking a morning adjournment for 15 minutes, which we will follow now.

MR KELLY: Thank you, your Honour. May it please the Court.

AT 11.22 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.37 AM:

MR KELLY: May I take your Honours to page 46 of the core appeal book, just to complete the picture when it comes to the orders which have been made and which are still on foot. At that page, in paragraph 210 of the primary judge’s judgment, your Honours will see set out the orders that were made by Justice Young on 22 February 2016. These orders, as your Honours see from the top of the page, reflect a quantification of damages – loss of bargain damages – which give rise to the judgment. In order 4:

for the plaintiff –

The appellant, against the former trustee:

[JPG] in the amount of $3,446.755.55.

Then his Honour, then‑Acting Justice Young declared that the former trustee:

the third defendant is entitled, as against the second defendant –

Jaken, the successor trustee:

to be indemnified out of the assets of the Sly Fox Family Trust for liabilities incurred by it in its capacity as trustee . . . including in respect of the judgment entered against –

the former trustee:

in these proceedings.

And then in order 6, the order referred to in the orders at page 160:

Further declare that the plaintiff is subrogated to the rights of the third defendant –

The former trustee:

for its entitlement to be indemnified from the assets of the Sly Fox Family Trust for its liability to the plaintiff in respect of the judgment –

All of those declarations and orders are entirely orthodox and they reflect the position for which we contend, namely that the former trustee has a right to be indemnified out of the assets or exonerated and, what is more, it is that entitlement – in this case, to be indemnified in respect of that particular judgment debt entered on that particular day. On that occasion, there was generated by the right, coupled with the debt, of a proprietary interest in the assets of the trust. It is that proprietary interest which we respectfully submit is properly, usually, described as a charge or lien over the assets of the trust.

This is not a situation in which the successor trustee is now holding property for and on behalf of – or for, in any sense of the word at all – it is hold property subject to the charge which is then and there created. Thus, one sees – lower down on the page – at the same time as these orders were made, orders were made pursuant to a notice of motion of the orthodox variety contemplated by the reasoning of Justice Brereton in Lemery, in which your Honours see that the first order is that:

The Second Defendant (Respondent) be restrained from disposing of or dealing with other than in the usual course of business, or further encumbering or diminishing –

et cetera. That is an asset‑preservation order which is the sort of order that was contemplated by Justice Leeming in paragraph 37 based upon the reasoning of Justice Brereton in Lemery. There is nothing unorthodox, unusual, in any way, shape or form in the structure of these orders. What is plainly not included is any declaration or suggestion that the successor trustee now holds some property on trust for the appellant in these proceedings. What the appellant in these proceedings has, and is declared by the order at 160, in substance if not in form, is an equitable charge.

For completeness, I should also direct your Honours’ attention to page 59, where your Honours will see, in paragraph 280 of the reasons for judgment of the primary judge, it is recorded that:

On 27 November 2020 –

which was during the course of the hearing before Justice Kunc:

the Court made orders for the appointment of a receiver and the sale of the Kings Cross Property –

the Kings Cross property is O’Malley’s Hotel and the business that your Honours see expanded upon in the interstices of order 1 – coupled with an order that the property:

be sold by the Receiver as a freehold going concern.”

So, what we have is orders in place and now being acted upon, conformably with the principles expounded in Lemery. Over the page – indeed, at the foot of the page in paragraph 281, your Honours see that:

On 16 March 2021, while judgment was reserved, the proceedings were relisted because NAB –

the secured creditor, had itself:

appointed receivers to . . . the Kings Cross Property. On that occasion the Court made these notations –

set out on the following page, the effect which is that the earlier order 5, restraining dealings with the trust property, was varied so that the National Australia Bank, through their receivers or as mortgagee in possession, may proceed to sell. It is in that context, indeed, in the middle of that page, your Honours see, that the court notes that the appellant:

has commenced separate proceedings against NAB –

The proceedings number is set out, in which he claims or:

alleges or will allege priority against NAB –

in relation to part of the:

sale proceeds of the Kings Cross Property –

So, the situation is one in which orders have been made and acted upon entirely consistently with the orthodox approach, without there being any suggestion of the trust property – that is to say, the assets of the entire trust – being held for and on behalf of or in trust for Mr Naaman. The critical, we would say – and, in any event, dominant – fact or circumstance is taken into consideration, that, in our respectful submission, militates strongly against any finding of a fiduciary duty being owed by the chargor to the party in the dominant position, the chargee.

Back to page 160, if I may just make one point very clear, and that is in order 1 ‑ ‑ ‑

JAGOT J: Which page, sorry? 106?

MR KELLY: Page 160. I am sorry, your Honour. Page 160, where the order is made, including the words:

Mr Namaan . . . had and has an equitable charge or lien over the assets from time to time of the Sly Fox Family Trust –

That form of declaration correctly records and gives effect to the proposition that an equitable charge of this variety extends to all of the assets of the trust. It does not pick and choose or isolate, and that is a factor which stands squarely against any finding that the relationship between the successor trustee and the former trustee is anything akin to that of a trustee and beneficiary, because the security nature of the equitable charge is such that its content depends upon whether or not there is a debt. Its content ebbs and flows according to whether or not a debt is paid or subsequently arises.

When it comes to clause 1.5 of the deed of appointment, for example, which is set out in the book of further materials, and can be found at ‑ ‑ ‑

GORDON J: I think it is page 36 of the book.

MR KELLY: At page 38 of the book of materials, page 1847. We see that the indemnity in terms is limited to debts which the retiring trustee has incurred, and which are unpaid at the time of execution of the deed. This deed was executed in 2007, the subject debt is the judgment debt entered, pursuant to an assessment of loss of bargain damages on 25 February 2016, some nine years later.

So, one has an example of a case in which debts which might be the subject of a charge of the type indicated ebb and flow, whereas this particular indemnity is limited to debts which the retiring trustee has incurred, and which are unpaid, back in 2007. So, in our respectful submission, this clause is of little or no utility. What it does, if it does anything in its second limb, is to create a contractual charge over the assets of the trust in favour of the former trustee in a manner which declares or imitates or reproduces the charge to which the former trustee is entitled in equity in any event.

The fact that this contractual charge is provided is itself a basis for not imposing a fiduciary obligation, because to do so would run counter to the indemnity. The scope of this contractual indemnity is limited in its terms, and a broader, much more wide‑ranging duty of the kind that would create from 2007 onwards – a duty to act with absolute disinterested loyalty in favour of the former trustee – would be antithetical to this instrument.

May I now take your Honours to the authorities for the proposition which clarify precisely what it is that this type of charge creates by way of a proprietary interest and show the way that the authorities support a finding that the successor trustee holds the assets, subject to the charge in a manner which is analogous with the mortgager or mortgagee, where there is no room for a fiduciary obligation. The first authority to which I seek to take your Honours is Associated Alloys, which is behind tab 14 in the joint book, where I will take your Honours, if I may, to pages 205 and 206.

STEWARD J: Could you give the Commonwealth Law report pages as well?

MR KELLY: Thank you, your Honour, I will. Associated Alloys 202 CLR 588, at page 595 and over to 596.

STEWARD J: Thank you.
MR KELLY: In paragraph 5, on page 205 of the joint book of authorities, we see a short note to the effect that:

The distinction between the institutions of the trust and the charge is thus essential –

for the resolution of this particular appeal. That distinction, as the Court goes on to say – Justices Gaudron, McHugh, Gummow and Hayne – the:

distinctions between the two institutions have been –

in this case, adopted by the legislature and of that additional reason are determinative of the fate of this particular matter. But at the top of page 206, your Honours will see that after referring to what Lord Hoffmann said in Bank of Credit & Commerce International, their Honours go on to say that his Lordship:

gave a description of an equitable charge in which he emphasised that the proprietary interest created thereby is held by way of security, so that the chargee may resort to the charged asset only for the purpose of satisfying some liability due to the chargee. The charge is subject to the equity of redemption retained by the owner. However, the beneficial interest held under an express trust is not so limited in nature. The remedy of the beneficiary is to proceed in equity for the performance of the trust, not for the sale of trust property –

What that underscores, is that the difference between the two institutions is of a particular significance. In footnote (33), their Honours referred with approval to what was said by the learned authors Meagher and Gummow in the 6th edition of Jacobs’, at paragraphs [227] to [229]. May I take your Honours to that material, which is to be found in the joint book of authorities behind tab 43. There, under the heading:

Trust, Equitable Charge and Equitable Lien –

we see paragraph [227], where the paradigm example is given in the words:

An equitable charge is created when, for example, a testator devises Blackacre to A, and then proceeds to charge Blackacre with the payment of a sum of money, for instance, his debts or an annuity or a legacy or legacies. In such a case, A is not a trustee of Blackacre. The essential element of a trust which is missing is that A is under no personal obligation to hold Blackacre for the benefit of any other person.

The learned authors go on to say that:

The charge creates an equitable interest in the property in the person in whose favour it is charged so that it does to that extent resemble a trust.

And a lot of my learned friends’ submissions, we would respectfully suggest, are coloured by that resemblance. But it is made clear that:

Such a person, however, has only a security interest in the property and has not the equitable ownership in the same way as a beneficiary under a trust. The distinction is important –

when it comes to “the remedies”, and thus we see:

In the case of an equitable charge the remedy of the person in whose favour the property is charged is against the property itself and not against the holder of the property.

Now, that is important in this case because when looking to see what the precise relationship is between the successor and former trustee in order to ascertain whether the successor trustee has an obligation which can be characterised as fiduciary – what this tells us is the nature of the equitable rights which flow from the fact that a charge has arisen.

EDELMAN J: Mr Kelly, do you accept that there is a difference between an obligation to hold an asset for the benefit of another, which would carry with it various duties to deal with the asset and deal with the asset in a way which ensures the benefit given to another person, and on the other hand an obligation to hold an asset and deal with it however you wish but just in a way that does not jeopardise the rights of another person?

MR KELLY: Most certainly, a distinction along those lines could be articulated, but whether they have any – whether that application, that distinction has any application in these circumstances is the question at hand, were these circumstances dominated by the fact that the former trustee has an equitable charge in the nature of a security interest over all of the assets held by the successor trustee and that the successor trustee is, in that sense, not holding property for the benefit of anyone – not holding property for benefit of the former trustee – it is holding property subject, of course, to the trust in favour of the beneficiaries, but what he has is property which is subject both to a registered charge in favour of the National Australia Bank to whom, obviously enough, he owes no fiduciary obligation, and he also holds subject to an equitable charge in favour of the former trustee if and when there are any moneys owing.

So, for the years between 2007 up to the date when a judgment debt came into existence by reason of the assessment of loss of bargain damages by Justice Young, there was an inchoate right, but not a charge which generated a proprietary interest, because the judgment debt had not come into existence yet. There was a contested claim. The contested claim failed at first instance before Justice Stevenson. On appeal, the court found that there was an entitlement to loss of bargain damages, and in 2016 there was an assessment of loss of bargain damages, and then the entry of a judgment debt.

In that lengthy period, it could not be said that there was any proprietary right in the assets in favour of the former trustee because the right was inchoate. Once one appreciates that the successor trustee holds the assets subject to the superior right, which is more closely analogous with that of a mortgage, it becomes, in our respectful submission, as plain as a pikestaff that there is no room for a fiduciary obligation.

The next authority to which I would seek to take your Honours is Hammersley Iron – which is page 1379 of the joint book, behind tab 34 – a decision of the Court of Appeal of Western Australia. In paragraph 49 on that page, under the heading “Charges”, the court says:

In general terms, the essence of an equitable charge is a proprietary interest granted by way of security, without any transfer of title (outright title as opposed to an equitable interest), or possession, to the chargee.

Referring to Lord Hoffman in Bank of Credit & Commerce:

Specific property of the chargor is expressly or constructively appropriated to, or made answerable for, the payment of a debt or other obligation. The chargee is given the right to resort to that property for the purposes of having it realised and applied in or towards the payment of the debt. Thus, the equitable chargee (unlike the beneficiary of a trust) has remedies against the property itself, and not against the holder of the property.

That concept was at the core of the reasoning of the majority in the Court of Appeal in the present proceedings and it is supported, as your Honours see, by ample authority, including Associated Alloys. Indeed, one sees in footnote 77 referred to, with approval, what the new editors of Jacobs’, eighth edition – Heydon and Leeming – say at [2.26] and [2.27]. That is also reproduced in this volume at the very last page. I do not really need to take your Honours to it, but what it says, in substance, is identical to what appeared in the sixth edition, only there is added by way of authority the extract from Associated Alloys.

So, what my learned friend needs to be able to do is to somehow superimpose a trust on a relationship, the elements of which are clearly enough defined in terms that there is no right available to the equitable chargee against the person of the holder of the property. The remedies are against the property itself, and, in this case, those remedies have been in part exercised.

Indeed, your Honours, this Court’s relatively recent decision in Carter Holt – although of course directed to a different question, namely, the fulfillment of the definition of “property” in the Corporations Act for other purposes. When it comes to matters of general analysis, however, a number of general propositions on which we rely find support. May I take your Honours firstly to page 379 of the joint book of authorities, which is page 544 of the Commonwealth Law Report of the decision – 268 CLR 524 at 544. In the first of the joint judgments, in paragraph 32 on that page, middle of the paragraph, we see:

The legal title held by the trustee has thus been described as subject to an equitable charge or lien in favour of the trustee to secure the powers of indemnity.

With generous support from Jennings v Mather, Octavo, Buckle and Bruton, and then further down in that paragraph:

A court may authorise the sale of assets held by the held by the trustee so as to satisfy the power of indemnity, as a step in the process of the trustee exonerating itself form authorised liabilities, in the same manner as any other equitable charge.

This is the proper subject‑matter, in our respectful submission, and the bundle of rights at the core of this relationship, and we do not see any suggestion that the trust assets – let alone all of the trust assets – are actually held in any manner in trust for the former trustee or any other basis for being suggested that the remedies available include any action for breach of any fiduciary obligation. The relationship of the type described simply does not allow room for such a duty.

Next, if I can take your Honours to page 395, paragraph 82 in particular. In the second of the joint judgments, halfway through paragraph 82, we see:

Inasmuch as a court of equity will aid the beneficiaries in the enforcement of the terms of trust, the beneficiaries are described, especially in revenue contexts, as having a beneficial interest in, or occasionally even beneficial ownership of, the trust assets. The beneficiaries’ interest is not, however, to be conceived of as cut out of the trustee’s legal estate but rather as engrafted onto it as a restriction on the manner in which the trustee may deal with trust assets.

And then in paragraph 83:

A court of equity will assist the trustee to realise trust assets to satisfy the trustee’s right of indemnity, in priority to the beneficiaries’ interests, and thus it is said that the trustee has an equitable charge or lien over the trust assets.

That trustee would, of course, include a former trustee. It is common ground that the right of exoneration survives any change of trustee. Once again, we see there underlined the proposition that the nature of the rights are those of equitable charge and the lien over the trust assets. They are not an ownership interest in them, in the sense of being a bundle of rights under which the trust property, or any part of it, is held for, or on behalf of, or in the interests of the former trustee, as distinct from the beneficiaries.

Next, if I can take your Honours to the judgment of Justice Gordon at page 416, paragraph 139 in particular. Her Honour’s analysis, of course, started back in about paragraph 133, referring to Chief Justice Allsop’s reasons in Jones v Matrix Partners. Having set out various references in support, one sees at 139:

Accepting that the trustee’s right of exoneration generates a proprietary interest in the trust fund not only is consistent with the above decisions, but is consistent with the nature of the trustee’s interest in the fund as a security interest in the form of an equitable lien.

Her Honour goes on to speak of the general concept of security. But then further down in the paragraph:

The concept involves a transaction, but the security is not the transaction, rather, it is the interest or aggregation of rights which arises from such a transaction. Such an interest is of a “proprietary” character: not necessarily in the sense of rights amounting to full ownership, but in the sense of rights available against a thing, and not merely against a person.

What this assists us to appreciate is, once again, the nature of the relationship occasioned by the nature of the rights. Which comes first, in a sense, does not matter, especially in a case such as the present, where the result has been made the subject of an earlier order.

In paragraphs 140 to 142, there is recognition of the error involved in treating the right of exoneration itself as one and the same thing as the proprietary right generated by it, because in a case such as a present, where debtor owes nine years after the deed, for example, one has an example of the ebbing and flowing and an example of the variable nature of the proprietary interest articulated using the term “trustee’s fluctuating proprietary interest in the trust fund” in paragraph 142.

So, the net result is, in our respectful submission, what we have here is a relationship in which – we should probably characterise as that of a charge and a lien, not as an interest in a trust, so that if we then go to paragraph 23 of my learned friend’s written submissions, the error in analysis which suggests that the successor trustee is holding something which is the property of others, or holding property which belongs to others and misusing it in some way, falls apart, because it is not holding the property of the former trustee.

The former trustee retains all of its rights to move for the appointment of a receiver or for an order for judicial sale. It retains all of its rights to move, in an appropriate case, for an injunction, as it has done, whereupon there is no extant obligation of a fiduciary character – quite the opposite: the party who is vulnerable in these circumstances is not the former trustee, it is the successor trustee, because the position of the former trustee is protected by its right to move as indicated.

Where my learned friend’s analysis goes wrong in paragraph 23 can be exposed in this way. The first sentence of that paragraph is correct, the question is, what:

is then the proper characterisation of the relationship between former and successor trustee.

I have dealt with that. The second sentence has three elements of error in it. The first proposition is:

If the property constituted by the right of exoneration is a proprietary interest –

Pause there. That conflates the right of exoneration, as such, with the right – the interest generated by it – they must be kept separate, if only to enable one to see when, if at all, any proprietary interest arises. If there is no debt, there can be no charge and, therefore, there can be no proprietary interest. As and when the secured debt alters, then the property rights, property interests, arise or ebb and flow. The next error is in the next proposition:

if that equitable proprietary interest subsists upon the retirement of a trustee –

That assumes that a debt is in existence and therefore there is an equitable proprietary interest in existence before retirement, but in a case where there is no unpaid debt beforehand, then nothing – it is inappropriate to speak of the proprietary interest subsisting. The only thing that subsists is the inchoate right of exoneration. Then the third error:

then it follows that the successor trustee hold property that is, in equity, the property of the former trustee.

That is wrong because the successor trustee does not hold any property that is the property of the former trustee; it holds property which is the property of the beneficiaries in which the successor trustee also has its legal entitlement, but those legal entitlements are subject to the charge in the same way or in a similar way to the way they are subject to the National Australia Bank’s registered charge. My learned friend goes on to say that:

“[U]nless there is something in the circumstances of the case to indicate otherwise –

Picking up on the words in Gillespie‑Jones:

a person who has ‘the custody and administration of property on behalf of others’ or who ‘has received, as and for the beneficial property of another –

Unless there is something in the circumstances of the case to indicate otherwise, that gives you a strong footing for the suggestion of the trust and, therefore, a fiduciary obligation.

But here, there is an abundance of material which clearly indicates otherwise, and that is the existence of the equitable charge or lien and the fact that a successor trustee does not receive any property or have any administration on behalf of others – the relevant other being the former trustee – it has, in the same way that it does not have the administration on behalf of the registered mortgagee. Then over the page, we see our friends speaking of the relationship bearing:

the “essential feature of any other trust relationship –

That is an error of analysis: the relationship does not bear that essential feature. The essential feature it bears is the essential feature which distinguishes a charge from a trust. Our learned friends go on to say:

The right of exoneration generates a beneficial interest –

With respect, that is inaccurate. If “beneficial interest” is being used in the narrow sense of an interest equivalent to that of a beneficiary of a trust, then the right of exoneration generates a charge in the event that there is a debt which is secured. And we certainly accept that that charge:

is proprietary in nature –

and we also accept that it is:

in priority to the beneficial interests of the beneficiaries.

But it does not follow, as my learned friends say, that:

Thus, the trustee in office is trustee of the former trustee to that extent.

The trustee in office is not trustee of the former trustee to any extent; it is an equitable chargor. And where my learned friends say:

That follows from the mere fact that the successor trustee is holding the legal title to property on trust – beneficially – for the former trustee.

Falls away for all of those reasons. So, far from the relationship between former and successor trustees being the archetype of a fiduciary, referring to the role of trustee, what would be anomalous is for the true characterisation of the relationship as a charge to be characterised as a trust, because that would fail to recognise the distinction between the two institutions and have the effect of obliterating the distinction.

They are our submissions on the core question of what it is that is the subject – what it is in the relationship, in relation to which the question arises whether there is an obligation in there which is fiduciary. In that regard, we of course rely upon the analysis of the majority below and we seek to advance a number of additional reasons of our own for why it is that we are not, here, dealing with a fiduciary relationship at all. Our first proposition ‑ ‑ ‑

GORDON J: Is this paragraph 10 of your outline of oral argument?

MR KELLY: Yes, your Honour.

GORDON J: Thank you.

MR KELLY: The effect of our paragraph 10 is really to list the factors that we have set out in Part V of our written submissions and, to some extent – indeed, to a significant extent – we have elevated our fourth point, which goes to the proprietary nature of the former trustee’s equitable charge – we have elevated that to the earlier part of our argument, and I think nothing in there needs to be repeated.

But the starting point, in our respectful submission, is we are looking for room to find an obligation which has a fiduciary character. Now, my learned friend focuses on the “correlative” obligation described by Justice Leeming in paragraph 37. In our respectful submission, that is the only avenue to find an obligation. What is the content of it? Is it capable of being found to be fiduciary, in light of other factors?

First and foremost, we say that to find a fiduciary duty, as contended for, is inconsistent with the provisions of section 59(5) of the Trustee Act because what section 59(4) does is to recognise a measure of permissible self‑interest in a trustee. To impose a duty of absolute disinterested loyalty in favour of a third party in a context where the statute has granted to the successor trustee its measure of permissible self‑interest, would produce an entirely unexpected and unworkable result, especially if – as my learned friend suggests – such a duty were to arise at day one at the point of appointment, because that would place the successor trustee in a position immediate actual or potential conflict of interest and duty or duty and duty, depending upon the state of indebtedness and the state of any competing claims when it came to the propriety or otherwise of debts and priorities.

What the legislature does is to carve out an area of permissible self‑interest. It does not subject that to any overriding duty in favour of a third party such as the former trustee and, as a matter of principle, there is simply no room for a duty to be imposed which is founded ultimately on the need to give preferred or exclusive effect to the interests of a former trustee. The fact that there is a charge reverses the position and eliminates any possibility of vulnerability entering the equation at that point.

Our second proposition is that the relationship between Jaken and JPG is contractual, not fiduciary. That requires consideration to be given to the two contracts: the deed which created the trust, and the deed of appointment. As we have earlier submitted, the obligation in clause 1.5 to indemnify JPG against all debts that were unpaid at the time of execution of the deed is an obligation to pay money; it is not an obligation to act for the former trustee in any representational or other sense. Of course, clauses 2.1 and 2.2 of that deed would stand in the way of any implied term. The effect would be to, in effect, paralyse the appointment of a successor trustee by placing it in a position of actual or potential irreconcilable conflict from inception.

In our third point, we refer to the provisions in section 6 of the Trustee Act. Significantly, section 6(13) of the New South Wales Act gives primacy to the instrument which creates the trust. In that way, when attending upon the apparent scope and purpose of the Act, it would be inconsistent to impose a duty on trustees in favour of third parties, even though they are former trustees. The only practical purpose sought by the imposition of any such duty, as I think is freely conceded, is to attract a wider range of potential defendants for the purpose of recoveries.

But in this case, we are a long way from even knowing if there is going to be a shortfall, certainly a long way from knowing if there is going to be a shortfall so far as Mr Naaman’s judgment debt is concerned, because he maintains that he has priority over the National Australia Bank.

The National Australia Bank sold the hotel for some 9‑odd million dollars, and if, in the fullness of time, various questions having been reserved for further consideration by the primary judge, there is a final accounting, including an accounting which gives credit for the value of all of the recoveries from the two other properties where section 37A claims have been successful – the Granville land and the two Victorian properties – the bottom line may well be that there is no shortfall on the account, and certainly a different shortfall, if any, depending upon whether or not Mr Naaman is successful in his claim to have priority over the bank.

I have dealt with the proprietary nature of the former trustee’s rights, which stand squarely and firmly against any suggestion of vulnerability, to the extent that that concept is apposite. In our fifth proposition, we have dealt shortly with the unfortunate decision in Rothmore (No 2). In that respect we rely upon the analysis of Justice Leeming, which suggests that the matter is of no value, for the decision proceeded on the erroneous basis, as a mere assertion, without providing any reasoning or any authority.

I think I have dealt with the proposition that there is no principled analysis for the mortgagee holding a surplus. Quite the opposite; any analogy concerning a mortgagee negatives the duty which is sought to be attracted. Halabi: we do not need to say anything more than we have set out in our written submissions; vulnerability we have also addressed, and I think in the remaining matters, we have dealt with it either in passing or sufficiently in writing.

The bottom line is, even if there is such a duty, we would respectfully submit that it should not be characterised in a manner that is here contended for; because what is here contended for includes wide

language of uncertain and variable content which, in point of principle, would be unworkable. It is all very well for my learned friend to say my clients, with roguish intent – to adopt his language – knew or must have known. But when it comes to the characterisation in point of principle, how can that be so, when the debt in question arose in 2016, and each of the impugned transactions are supposed to have taken place before that date?

They are my submissions, if it please your Honours.

GAGELER CJ: Thank you, Mr Kelly. Mr Walker.

MR WALKER: Your Honours, in that last observation, my friend repeated the proposition that the debt, as if it were the foundation of the right in question, did not arise until 2016. He is talking about a judgment. It is a judgment with respect to rights which had been the subject of litigation. The knowledge of the controllers of all the relevant actors on the other side of the record long pre‑dated the entry of the judgment which had been the subject of that litigation.

But it means that the argument against us by reference to that sequence of events, apart from being wrong in picking upon the first existence of a judgment debt as the commencement of anything relevant, would thereby have this effect: that a trustee, perceiving a claim – which has not yet resulted in a judgment debt – does what happens in this case, that the shuffle to another trustee and then transfer away of trust assets, in order, as was found in this case, precisely to forestall any valuable recovery on the chose in action, still not yet having produced a judgment debt.

That, with respect, does not smack of equity’s approach to the relations between a trustee and a former trustee at all. It gives no content whatever to the idea of a right of exoneration surviving succession. On the implication of that argument against us, all a trustee needs to ensure is that before there is a judgment debt, there is a change of trustee, and when the same person or persons pull all the strings, then, in our submission, equity is mocked.

It is for those reasons that, naturally enough, it being a doctrine of equity, it is no objection to say that the matters are not capable of a priori definitive precise description which would produce relief one way or the other and are therefore – to use my learned friend’s epithets – uncertain and variable. Rather than being uncertain and variable, the equity in question – namely, the right of exoneration with the correlative obligation not to jeopardise it – is, as a creature of equity, obviously flexible in the proper sense that the remedy to enforce any adjudicated breach of that obligation will, of course, be adaptable or moulded to the facts. That is why, for example, in another case not before this Court, questions of the adequacy of notice, or the acquiescence or laches of a former trustee would become relevant.

But, with respect, the premise upon which all of that attack on our argument concerning the fiduciary nature of that obligation not to jeopardise the accepted right of exoneration all dissolves when one appreciates that it is premised on a view of the obligation coming into existence that were treated in this case as not happening until there is a judgment debt. And that, in our submission, is absurd and would be productive of the kind of abuse that happened in this case.

Your Honours, reference to the orders that you find, for example, at page 46, most recently gone to by our learned friend, cannot possibly preclude the indemnity or, more properly in our case, exoneration from being proprietary as an interest, including by its character, according to the authorities, as being in the nature of a charge. The orders say nothing to preclude any such argument, and this is, I think, the first time any notion of estoppel by record has intruded into this case. It goes nowhere; the record produces nothing to the detriment of our argument.

The point we make about the former trustee’s proprietary interest in the trust assets is not, at any point of our argument or of imaginable doctrine, that it distributively selects part of the property earmarked, as it were, to discharge the obligation, whatever it may be, to extent. That is absurd, that is not what a charge does, and it is certainly not what the proprietary interest does, and, to that degree, we emphatically agree, this is a proprietary interest in the whole of the assets held by the trustee, the current trustee.

GORDON J: From time to time.

MR WALKER: From time to time – it will go up and down, just as the financial reflex of the right of exoneration will go up and down and may not be known for quite some time. The orders that were made are simply, of course, orders made to permit the enforcement in the usual totally orthodox and unremarkable way of that pre‑existing right of exoneration. Those orders did not create the right.

With respect to the quality of the interest as a charge, at the risk of taking your Honours back to where you have already more than sufficiently been, I do want to take you back to paragraphs 83 and 84 of Carter Holt 268 CLR 524, simply to note that the explanation by the Justices, including the Chief Justice, of the nature of that right of indemnity – and we can take this as standing indistinguishably for rights of exoneration – is said to be one that is:

said that the trustee has an equitable charge or lien over the trust assets.

That means over all of them. It means that any correlative obligation, we interpolate, will be with respect to your holding and dealing with the whole of the trust assets. But it is important to note the qualification that follows:

It is not . . . comparable to a synallagmatic security interest over property of another.

So, analogies with true mortgages – that is, mortgages at law, registered in our system – or equitable mortgages or, for that matter, the formally‑created charges not imposed by judicial adjudication are, with respect, quite inapposite, as the last sentence of 83 makes clear. It is a completely different genesis. It is endogenous as an incident of the office of trustee. It does not come from a contract with mutual rights and obligations, as most mortgages and charges do.

GAGELER CJ: Do you say there is any difference between what is said there and what is said in the other joint judgment at paragraph 32?

MR WALKER: I think answer is no. I think I can also say that that true of the passages to which I have already referred in Justice Gordon’s reasons. Your Honour asked me about paragraph 32, in particular.

GAGELER CJ: We were told that paragraph 83 is to be read as saying the same thing as 32.

MR WALKER: Your Honours, without engaging in scholasticism, for the points that I seek to get out of this, no, there is no difference. Were I elsewhere, there may be differences – subtle or otherwise – in the approach, but they do not matter for today. In particular, there is nothing in 32 that denies the force of what I am going to call the “endogenous character” not coming from a synallagmatic dealings, in paragraph 83.

We draw this from these characterisations, in answer to our learned friend’s repeated assertion that once one understands that a charge is a security like a mortgage, then there is simply no room for fiduciary obligation between the parties to it. For a start, the word “parties”, with respect, stretches the matter too far. This is imposed as an incident of law arising from a relation in which there has come to be a current and former trustee. It comes into being precisely because there has been a transfer of all the trust assets and it comes from a pre‑existing right of indemnity or exoneration which the one and only trustee always had but, obviously, not owing itself any obligations whatever. So, it comes about because that legal ownership has now changed, with all the consequences that I have sufficiently addressed on in chief.

Far from contraindicating a fiduciary susceptibility, in our submission, the nature of the charge, as explained as springing from that relation, and not springing from a contract or commercial transaction, is precisely why it indicates the fiduciary qualities and is not to be swept aside as being akin to the self-interested opposed interests of parties to a transaction such as a registered mortgage. It has no resemblance to that at all.

This charge or interest generated by the right of exoneration cannot be seen to be an incumbrance in the sense of a carved‑out ownership interest, but that is not to the point. It is, on any view of it, a restraint enforceable in equity in default by appropriate injunctions and, perhaps, other remedies that are not before this Court or, in order to enforce by the receivership and judicial sale to which reference has been made. That, in our submission, is precisely the description of the creation of a position by equity according to the dictates of conscience with respect to the protection of a trustee, including after retirement, that answers the description of an appropriate springboard for characterisation as fiduciary.

Finally, with respect to the contractual, or commercial, or legal hypothecation characterisation as somehow sweeping up our case so as to dispel the possibility of fiduciary character, can we remind your Honours that which is obvious from common experience and from the cases, and is referred to in one of the central passages of Sir Anthony Mason’s reasons in Hospital Products to which I have already drawn attention.

Of course, contractual relations, including commercial – the commerciality of Hospital Products v United States Surgical was overwhelming – of course, there can be, created by contract, a relationship from which there may be discerned obligations which are fiduciary in nature. It is not enough to wave commercial or contractual as if it were some wolf’s bane against the possibility of a fiduciary obligation. That is simply an incorrect approach.

Your Honours, there was a suggestion, again by reference to this fallacious dating of the debt to the judgment and therefore looking to some antecedent period as a period when it would be somehow wrong to suppose there is a right of indemnity or exoneration. There is a passage in the argument that surely means this, with respect to a true – that is, legal – mortgage, if that is the approach you took. It is said by our friend that until you know that there is a judgment debt, there could not possibly be a proprietary interest in the trust assets constituted – or generated, I should say – by the right of exoneration.

If that were a proper approach to the right of exoneration which comes about in the way in which I have argued it in chief, then it would presumably also apply with respect to a registered mortgage. How odd: I give a mortgage to secure my overdraft; I am in credit; there is no overdraft – I do not owe the bank, it owes me. Nobody in their right mind, I suggest, would ever say that mortgage does not constitute – for what might be, for that very unfortunately‑brief period of credit – does not constitute a proprietary interest. Of course it does.

It is for those reasons, in our submission, that the attempt to produce this interregnum when there is no control in favour of a former trustee while litigation grinds on and steps are taken to spirit away the assets, including by change of trustee, should be rejected as utterly at odds with the genesis of the whole of this equity.

Now, the points made about aspects of our paragraph 23 are well made. We do not need to go so far, and in my argument in chief and in our outline of propositions we do not go that far, and it is too far. It is, in fact, to have trespassed into an area that Justice Campbell studiously avoided in his observation in Esber, to which I have already referred, at paragraph 143 – in the authorities book it is tab 39, at page 1565 – namely, that it was not necessary for the purposes of that case – which you will recall is the surplus in the hands of the selling mortgagee – it was not necessary to go so far as to examine whether the relation in question was what he called a “fully‑fledged” trust.

As we argued in chief, as you will see in our outline of propositions, we do not need and we should not have gone so far as to say these are circumstances which constitute the current trustee – a trustee, to use Justice Campbell’s expression, “fully‑fledged” – for us, that is, for the former trustee to whose rights we are subrogated. All that matters is that the obligation to protect that right of exoneration be fiduciary in nature.

Of course, in our submission, it is more rather than less suggestive of a fiduciary obligation that there are not, so to speak, all the institutional protections of a fully‑fledged trust. It is for those reasons, in our submission, that though, as I say, some of the criticisms our learned friend has levelled at our paragraph 23 are merited, they go nowhere in terms of the proper disposition of this case.

As to the statutory and, for that matter, transaction instruments provisions to which my learned friend has referred as severally and together precluding, by reason of an inconsistency or conflict, the characterisation of the duty to protect the right of exoneration as fiduciary, in our submission, they are all wrong for this basic reason. Take provisions which permit what might be called, as our learned friends put it, permissible self-interest for a trustee. It is not seriously proposed that that statutory regulation of that which could be done at general law, with appropriate steps – it is surely not suggested that that destroys the otherwise undoubted fiduciary obligation of the trustee to beneficiaries. But those provisions are basically regulating conduct between trustees and beneficiaries and permitting trustees to have that so-called permissible self-interest.

This is, with respect, a furphy, to say because there is an aspect where there is some self-interest, therefore the fiduciary quality – with its central concept of undivided loyalty – is driven from the field, is, for the reasons explained by Mr Justice Mason in Hospital Products, in the passage we have cited, and as a simple matter of ordinary principle, impossible to maintain, and hitherto is not the subject of any authority in this Court that so soon as somebody is rash enough to agree to the self-interest of the trustee by way of charging their usual commercial fees – which is a not‑uncommon provision – that they somehow sacrificed all of the fiduciary quality of the obligation owed them by that professional trustee, is, in our submission, self-defeating in a system of law designed to enhance, protect, and render socially useful the institutions of trusts.

In any event, of course, lest a comment by our friend concerning our evident ambition under Barnes v Addy with respect to what I will call strangers to the trust, none these provisions, be they contractual, by deed or by a statute either purport to or could, of their nature, regulate – in the case of statute, in the absence of some expropriatory language – regulate the claims of a former trustee pursuant to a right of exoneration against strangers, and they do not purport to.

It may be that part of our learned friends’ argument in the catch‑all proposition 10 might be understood as suggesting that the fact that the right of exoneration generates a proprietary interest itself, because of its being proprietary, precludes there being a fiduciary obligation or character to the accepted obligation not to jeopardise it imposed on the current trustee, that is, the legal holder of the trust assets. In our submission, if my understanding is correct of what I heard, then your Honours would reject that as well. There is nothing inimical between a right being proprietary and a correlative obligation not to jeopardise it having, in the circumstances, a fiduciary quality.

To the contrary, the notion that one’s property may be sacrificed to the deprivations of a person holding its legal title – that is, the legal title of the assets over which the property interest is held – is, if anything, an indicator in orthodox terms of a fiduciary character rather than to the contrary.

May it please the Court.

GAGELER CJ: Thank you, Mr Walker. The Court will consider its decision in this matter and will adjourn until 10.00 am on Tuesday.

AT 1.01 PM THE MATTER WAS ADJOURNED

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Naaman v Jaken Properties Australia Pty Limited ACN 123 423 432 & Ors [2024] HCATrans 69

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Aces Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia [2014] NSWCA 402

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