JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: PRIOR -v- SIMEON [2010] WASC 382
CORAM: CORBOY J
HEARD: 2 DECEMBER 2010
DELIVERED : 7 DECEMBER 2010
PUBLISHED : 14 DECEMBER 2010
FILE NO/S: CIV 1512 of 2010
BETWEEN: JOHN PRIOR
Plaintiff
AND
NICHOLAS SIMEON
First DefendantMARIA SIMEON
Second Defendant
Catchwords:
Trustee's right of indemnity out of trust property - Equitable lien and order for sale of property - Removal of caveat - Turns on own facts
Legislation:
Nil
Result:
Orders made for sale of trust property and removal of caveat
Category: B
Representation:
Counsel:
Plaintiff: Mr P A Martino
First Defendant : In person
Second Defendant : In person (Mr N Simeon)
Solicitors:
Plaintiff: P A Martino
First Defendant : In person
Second Defendant : In person
Case(s) referred to in judgment(s):
Agusta Pty Ltd v Official Trustee in Bankruptcy [2008] NSWSC 685
Apostolou (as trustee of the Vasiliou Family Trust) v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84
Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226
Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 5 WAR 42
Giacci v Giacci Holdings Pty Ltd [2010] WASC 349
Perpetual Trustees WA Ltd v Kelly (1993) 8 WAR 480
Trim Perfect Australia Pty Ltd (in liq) v Albrook Constructions Pty Ltd [2006] NSWSC 153
CORBOY J:
Summary
By a deed made on 30 March 2007, the plaintiff (Mr Prior) declared that he held property located at 30 Reynolds Road, Applecross (the Property) on trust for the first and second defendants (Mr and Mrs Simeon). Mr Prior, in his capacity as trustee, subsequently expended money on the Property, principally by paying instalments due under a loan made by Australian & New Zealand Banking Group Ltd (ANZ) for the purpose of acquiring the Property. He sought an order for the sale of the Property to create a fund from which he could be reimbursed by way of indemnity.
On 7 December 2010, I ordered that the Property be sold and made ancillary orders for that purpose. These are my reasons for making those orders.
The conduct of the proceedings
Mr and Mrs Simeon were represented by solicitors at the time that they entered an appearance to the originating summons by which these proceedings were initiated. However, they acted in person from 30 June 2010. Mr Simeon appeared on behalf of himself and his wife at each of the directions hearings convened in this matter and at the hearing of the originating summons.
Mr Prior relied on three affidavits in support of his application: affidavits sworn by himself on 16 April 2010 and 17 November 2010 and an affidavit sworn by his solicitor, Ms Martino on 26 May 2010.
Mr Simeon prepared two documents in the form of submissions prior to the hearing of the originating summons. Each submission substantially contained statements of fact and annexed relevant documents. Mr Simeon confirmed on oath at the hearing of the originating…
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- Prior v Simeon [2010] WASC 382
- Case
- [2010] WASC 382
- Decision Date
CaseChat Overview and Summary
The legal issues at hand primarily focused on the principles governing a trustee's right to apply trust funds to discharge liabilities incurred in the proper execution of the trust. The court had to consider whether the trustee's actions were within the scope of their authority and whether the equitable lien was correctly imposed on the trust property. Additionally, the court examined the procedural fairness of the trustee's decision to remove a caveat and the subsequent order for sale of the property. The fundamental question was whether these actions aligned with established legal principles and equitable doctrines.
The court's reasoning was grounded in established principles of trust law, particularly the right of indemnity and the equitable lien. The court acknowledged that a trustee has a right to be indemnified out of trust property for liabilities incurred in the authorised conduct of the trust. This right takes the form of an equitable lien, which gives the trustee a proprietary interest in the trust property to the extent of the indemnity. The court noted that this lien takes priority over the beneficial interests of the beneficiaries, meaning that until the trustee's right to reimbursement or exoneration is satisfied, the beneficiaries' entitlements to the trust property are diminished. The court also highlighted that while a trustee may apply to a trust fund to satisfy their right of indemnity without court intervention, an equitable lien does not confer title and thus cannot be enforced by sale without judicial approval.
The court ultimately upheld the trustee's right to apply the trust property to discharge the liabilities, finding that the actions were consistent with established legal principles. The equitable lien was deemed valid, and the removal of the caveat and the order for sale of the property were considered procedurally fair. The court's decision was informed by authoritative judgments and legal texts, ensuring that the trustee's actions were in line with the law. The court's final orders affirmed the trustee's entitlement to the equitable lien and authorised the sale of the property to satisfy the liabilities.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
The principles relevant to a trustee's right to resort to and apply trust funds to discharge liabilities incurred in the authorised conduct of the trust are well‑established. They are conveniently summarised in the judgment of Owen J in Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 5 WAR 42 at 52 - 53 (with whom Malcolm CJ and Walsh J agreed) and more recently, in the judgments of Austin J in Trim Perfect Australia Pty Ltd (in liq) v Albrook Constructions Pty Ltd [2006] NSWSC 153 and Nicholas J in Agusta Pty Ltd v Official Trustee in Bankruptcy [2008] NSWSC 685; see also Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (7th ed, 2006) [2104] and following and Ford HAJ and Lee WA, Principles of the Law of Trusts (Loose‑Leaf Edition) [14.110] and following. I gratefully adopt the summaries provided by Owen J, Austin J and Nicholas J, each of which is consistent, in substance, with the other. It is not necessary to further discuss the relevant principles other than to note that:(a)A trustee is personally liable for the debts it incurs as trustee. However, where it incurs expenses or becomes subject to a liability in the course of executing the trust, it has a right of indemnity out of the assets of the trust in respect of those expenses or that liability. The right of indemnity takes the form of either a right of recoupment (reimbursement) of expenditure made by the trustee or a right of exoneration from the liability to make expenditure which has not yet been expended.(b)The right of indemnity is supported by an equitable lien over the trust assets (it is sometimes referred to as an equitable charge but it arises as a matter of law rather than by agreement between the parties). The right of indemnity so secured confers upon the trustee a proprietary interest in the trust property to the extent of the indemnity; the corollary being that the beneficiary's interest in the trust property is diminished to that extent: see Perpetual Trustees WA Ltd v Kelly (1993) 8 WAR 480, 486 (Anderson J). (c)The trustee's equitable interest in the trust property to the extent of the right of indemnity takes priority over the beneficial interest of the beneficiaries: see Ford and Lee at [14.210] and following. The nature of the interests of the trustee and the beneficiary in the trust assets where there is a right of reimbursement or exoneration is explained in Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 246 - 247: Until the right to reimbursement or exoneration has been satisfied 'it is impossible to say what the trust fund is'. The entitlement of the beneficiaries in respect of the assets held by the trustee which constitutes the 'property' to which the beneficiaries are entitled in equity is to be distinguished from the assets themselves. The entitlement of the beneficiaries is confined to so much of those assets as is available after the liabilities in question have been discharged or provision has been made for them. To the extent that the assets held by the trustee are subject to their application to reimburse or exonerate the trustee, they are not 'trust assets' or 'trust property' in the sense that they are held solely upon trusts imposing fiduciary duties which bind the trustee in favour of the beneficiaries…The term 'trust assets' may be used to identify those held by the trustee upon the terms of the trust, but, in respect of such assets there exist the respective proprietary rights, in order of priority, of the trustee and the beneficiaries…the trustee's right to exoneration or recoupment 'takes priority over the rights in or in reference to the assets of beneficiaries' …the enforcement of the [equitable] charge is an exercise of the prior rights conferred upon the trustee as a necessary incident of the office of trustee.(d)A trustee may have recourse to a trust fund to satisfy its right of indemnity without curial intervention. However, an equitable lien (or charge) does not grant title to the property that is subject to the lien; it is a mere hypothecation and consequently, does not carry with it a power of sale and may only be enforced by judicial sale or the appointment of a receiver where it is necessary to deal with property to create a fund from which the trustee may be indemnified: and see Apostolou (as trustee of the Vasiliou Family Trust) v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84 [38] - [39].(e)The right of indemnity accrues at the time the obligation is incurred, although it may subsequently become either a right of recoupment or a right of exoneration depending on how the trustee responds.