A trustee’s right of indemnity – the entitlement to be reimbursed from trust assets for expenses and liabilities properly incurred in administering the trust – gives rise to an equitable interest in the trust property that ranks ahead of the interests of the beneficiaries. Importantly, the equitable interest survives the trustee’s removal from office, enabling a former trustee—or their creditors, via subrogation—to access trust assets, even where those assets are no longer under the trustee’s legal control.

Subrogation is an equitable remedy that allows one party to assert the rights of another without needing an assignment or agreement. It typically occurs when a third party pays off someone else’s secured debt, intending to benefit from the related security. The principle behind subrogation is to recognise a third party for their contribution in resolving the debt while the debtor retains access to the secured property.

Protection from Personal Exposure

The indemnity right shields trustees from personal liability concerning debts and obligations incurred in the due execution of the trust as a trustee is entitled to satisfy them using trust property rather than their funds.

Conditioned on Proper Administration

This right applies only to costs and liabilities properly incurred in administering the trust. It will not apply where the trustee has acted in breach of trust, exceeded their authority, or failed to fulfil fiduciary obligations.

Legal Sources of the Right

The trustee’s indemnity arises from multiple sources:

Equity: A trustee is entitled to be indemnified for proper expenses and liabilities in general law.

Trust Instrument: Many trust deeds include express indemnity provisions affirming the trustee’s entitlement.

Statute: Trustee legislation in various jurisdictions recognises and reinforces this right.

Mechanisms of Exercise

The trustee may exercise the right of indemnity in two ways:

• Recoupment: The trustee may reimburse themselves from trust assets for amounts already paid.

• Exoneration: The trustee may apply trust assets directly to meet liabilities owed to third parties.

Priority of Indemnity

The trustee’s right of indemnity ranks ahead of the claims of beneficiaries. Accordingly, if trust assets are insufficient to meet all obligations, the trustee’s entitlement to indemnity takes precedence.

Application to Former Trustees

A former trustee may still rely on their right of indemnity concerning obligations properly incurred during their period of appointment, even after vacating office. This legal position turns on the nature of the former trustee’s equitable interest in the trust property. However, questions arise concerning the relationship between a former trustee and their successor.

  • Does the successor trustee owe fiduciary duties to the former trustee?
  • Is the successor prohibited from dealing with trust assets in a way that undermines the former trustee’s indemnity entitlement?

The High Court addressed these questions in Naaman v Jaken Properties Australia Pty Ltd [2025] HCA 1, revealing a division of opinion in a narrowly split bench.

Background

Though the underlying dispute spanned many years and involved complex proceedings, the essential facts for the appeal were straightforward. Jaken Property Group Pty Ltd (JPG) had served as a trustee of the Sly Fox Family Trust, holding property in Victoria and New South Wales, including land in Kings Cross, where O’Malley’s Hotel was located. In early 2007, Jaken Properties Australia Pty Ltd (Jaken) was appointed JPG’s successor trustee. As a former trustee, JPG retained a right of indemnity over trust assets. Mr Naaman, the appellant, was a judgment creditor of JPG and claimed subrogation to that indemnity right.

Other respondents included individuals and entities involved in Jaken’s subsequent dealings with the trust property. In Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517, Kunc J found that:

  • A fiduciary relationship existed between Jaken and JPG;
  • Jaken had engaged in a fraudulent scheme to divest assets that could otherwise satisfy JPG’s indemnity and
  • Certain respondents knowingly participated in Janken’s fraud, exposing themselves to equitable compensation as third-party accessories under Barnes v Addy principles.

The viability of a Barnes v Addy claim against these accessory respondents was a significant motivating factor behind the ensuing appeals.

In Jaken Properties Australia Pty Ltd v Naaman [2023] NSWCA 214, a majority (Leeming and Kirk JJA) held that Jaken did not owe fiduciary obligations to JPG, with Bell CJ dissenting. Mr Naaman appealed that finding to the High Court.

The principal question before the High Court was whether a successor trustee owes fiduciary duties to a predecessor trustee concerning the latter’s right of indemnity against trust assets. The Court’s majority answered in the negative, although a minority of three Justices expressed a contrary view.

The various judgments illuminate the legal character of the trustee’s indemnity and fiduciary obligations more broadly. The decision also prompts reflection on whether current equitable remedies are adequate to protect the interests of former trustees—an issue of practical significance for those advising on trust administration and succession.

The Majority Judgment

Gageler CJ and Gleeson, Jagot, and Beech-Jones JJ delivered the majority opinion—centred on distinguishing the nature and legal consequences of a former trustee’s interest in trust property from those of a beneficiary to whom the trustee traditionally owes fiduciary duties. Unlike a beneficiary’s equitable interest, the former trustee’s entitlement resembles a lien or equitable charge. As the majority noted—quoting Jaken’s submission—trustees hold property for beneficiaries “subject to the interest of the former trustee” ([19]).

The majority warned against expanding fiduciary classifications into areas more appropriately governed by other legal doctrines. They stressed that the proposed fiduciary relationship in this case would arise “within the heartland of the law of trusts” ([32]). Crucially, they held that an equitable proprietary interest alone is insufficient to give rise to fiduciary obligations. They similarly rejected the suggestion that a former trustee’s vulnerability to its successor could support the imposition of a fiduciary duty, characterising it merely as dissatisfaction with the adequacy of available equitable remedies ([44]). Ultimately, the majority concluded there was no justification for overlaying a fiduciary relationship atop the proprietary interest already held by the former trustee in the trust assets.

The Dissenting Judgment

Justices Gordon, Edelman, and Steward delivered a joint dissent. In contrast with the majority, their analysis focused on the core characteristic of fiduciary relationships—namely, the undertaking of loyalty. The key issue for the dissent was whether the successor trustee had assumed a responsibility towards the former trustee sufficient to create a legitimate expectation that the successor would act in the former trustee’s interest, even to the exclusion of their own or others’.

The dissenting justices considered it significant that the successor trustee accepted appointment in circumstances where the former trustee’s right of indemnity was plainly apparent. In their view, this acceptance constituted an assumption of the type of responsibility that gives rise to fiduciary obligations. They further reasoned that it would be anomalous to recognise fiduciary duties owed by a trustee to beneficiaries—whose interests are subordinated to the indemnity right—while denying such duties to a predecessor trustee whose entitlement ranks higher. On this basis, they concluded that Jaken, as successor trustee, owed fiduciary obligations to JPG not to act in ways that would deliberately compromise its entitlement to indemnification from trust assets.

The majority judgment reflects a restrained, principled approach, preserving the doctrinal integrity of existing legal categories and resisting an expansive conception of fiduciary obligations, the reaffirmation of the traditional delineation between equitable proprietary rights and fiduciary relationships. However, what is notable is the absence of direct engagement in the majority’s reasoning with the central question posed by the dissent: whether an assumption of responsibility sufficient to support an undertaking of loyalty had occurred.

While it is beyond dispute that an equitable interest alone does not establish a fiduciary relationship, this was not the dissent’s contention. Instead, the dissenting judges grounded their analysis in consciously accepting a role where another’s priority interest in the trust property was readily apparent. For critics of the dissenting view, the argument may appear to rest on little more than the suggestion that knowledge of another’s equitable interest creates fiduciary accountability. That question, however, remains unresolved in the majority’s analysis and is not developed further in the High Court’s decision.

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