The dispute began when a successor trustee took control and transferred trust assets to third parties
The High Court ruled that a successor trustee does not owe a fiduciary duty to a former trustee regarding indemnification rights, affirming that trust administration is governed by equitable proprietary rights rather than fiduciary obligations between trustees.
The decision, which aligns with the majority ruling of the NSW Court of Appeal, clarifies the legal responsibilities of successor trustees and limits the scope of fiduciary relationships in trust law.
The case centred on whether a successor trustee has a fiduciary duty to a former trustee regarding the former trustee’s entitlement to indemnification. Under established principles, a trustee has the right to be indemnified from trust assets to recover expenses or be exonerated from liabilities incurred in administering the trust. This right survives the trustee’s replacement and grants an equitable proprietary interest in the trust assets.
The dispute arose after a successor trustee assumed control of a trust and subsequently transferred trust assets to third parties. These transactions reduced the assets available to satisfy the former trustee’s indemnification rights. A lower court ruled that the successor trustee owed a fiduciary duty to the former trustee and had breached that duty through dishonest and fraudulent conduct. However, the majority of the Court of Appeal disagreed, finding that no fiduciary duty existed. A dissenting judge argued that a fiduciary obligation should arise at least when the successor trustee becomes aware of the former trustee’s indemnification claim.
The High Court upheld the majority ruling, concluding that a successor trustee is not in a fiduciary relationship with a former trustee. While a former trustee retains an equitable proprietary interest in trust assets, the court determined that this interest does not impose a fiduciary duty on the successor trustee. The court reasoned that the successor trustee’s primary responsibility is to administer the trust for the beneficiaries and not to act in the interests of the former trustee. It also noted that a former trustee has access to legal remedies, such as injunctions or receivership, to protect indemnification rights but cannot rely on fiduciary duties to achieve the same protection. Expanding fiduciary obligations in this context, the court found, would be inconsistent with established principles of trust law.
The ruling clarifies the duties of successor trustees and confirms that fiduciary relationships should not be extended beyond their traditional scope. The decision reinforces that trust administration is governed by equitable proprietary rights and statutory obligations rather than by fiduciary duties between trustees.
