Jaken Properties Australia Pty Ltd v Naaman

1. [1]

   BELL CJ: The principal question raised by this appeal, namely whether a successor trustee owes a fiduciary obligation to a predecessor trustee in respect of the latter’s right to be indemnified or exonerated out of trust assets, is important because on its resolution turns the ability of the respondent in the present case, standing in the shoes of the predecessor trustee, to engage the principles in Barnes v Addy (1874) LR 9 Ch App 244 to secure equitable compensation from third parties who were held to have knowingly assisted in a successor trustee’s breach of what the primary judge accepted was a fiduciary obligation owed to its predecessor: Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517.

2. [2]

   The detailed facts giving rise to this question are set out in considerable detail and with great clarity in the judgment of Leeming JA which I have had the benefit of reading and which do not need to be repeated. His Honour has reached the conclusion (as has Kirk JA) that the successor trustee of the Sly Fox Family Trust, Jaken Properties Australia Pty Ltd (Jaken), did not owe a fiduciary obligation to its predecessor, Jaken Property Group Pty Ltd (JPG) not to deal with trust assets so as to prejudice JPG’s right of indemnity from those assets in respect of expenses or liabilities properly incurred by it in its former capacity as trustee of the trust. As I understand Leeming JA’s judgment, while his Honour fully accepts that a duty of the kind described was owed, he does not consider that it was fiduciary in character: see below at [38].

3. [3]

   I have reached the opposite conclusion and agree with the primary judge’s view that a fiduciary obligation was owed and breached, with consequences for third parties who the primary judge held had knowingly assisted in a dishonest and fraudulent breach of that duty. My conclusion does not depend in any way on the fact that, because equity would grant certain relief on the application of a former trustee against a successor trustee, the latter owes a fiduciary obligation to the former. I am also conscious of the observation of Sopinka J in Norberg v Wynrib [1992] 2 SCR 226 at 321; (1992) 92 DLR (4th) 449 at 481, cited with approval by Gaudron and McHugh JJ in Breen v Williams (1996) 186 CLR 71 at 110; [1996] HCA 57 (Breen), that “[f]iduciary duties should not be superimposed on these common law duties simply to improve the nature or extent of the remedy.”

4. [4]

   Underlying what I have described as the principal question in the present appeal are a number of well-established propositions. These are that:

5. [5]

   In Buckle, it was said by a unanimous High Court, citing Octavo at 370, that:

6. [6]

   As explained further below, it would in my opinion be quite anomalous for this special and superior right and interest in the trust assets enjoyed by the former trustee not to attract fiduciary obligations binding the successor trustee in circumstances where the lesser and subordinated or inferior rights of the ordinary beneficiaries do attract fiduciary obligations (and consequent protection) owed by the incumbent successor trustee.

7. [7]

   True it is that a former trustee will have the assistance of equity to enforce its right in the same way as any equitable charge (Buckle at [50]; Hewett v Court (1983) 149 CLR 639 at 663; [1983] HCA 7). That does not mean, however, that the value of its right to exoneration, indemnity or recoupment may not be diminished or even destroyed by a successor trustee who is fully in control of the assets from which indemnity or recoupment will be sourced. The case for that trustee, with custody of the trust property, to be subject to a fiduciary obligation vis-à-vis its predecessor, is strong.

8. [8]

   To the well-established propositions noted in [4] above may be added the following propositions which go to the question of when a fiduciary duty or obligation will be recognised or imposed. They are that:

9. [9]

   In Breen at 82, Brennan CJ made the following valuable observations in relation to fiduciary duty (footnotes omitted):

10. [10]

    In his judgment in Breen, Gummow J observed at 137 that “[f]iduciary obligations arise (albeit perhaps not exclusively) in various situations where it may be seen that one person is under an obligation to act in the interests of another.”

11. [11]

    In Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [32], French CJ and Keane J said (omitting footnotes):

12. [12]

    Professor Paul Finn, before his eminent career as a judge of the Federal Court, was the leading Australian scholar on the fiduciary principle: see, for example, Paul Finn, Fiduciary Obligations (Federation Press, 2016) and Finn above. Professor Finn identified the concern of fiduciary law as being to impose standards of acceptable conduct on one party to a relationship for the benefit of the other, where the one has a responsibility for the preservation of the other’s interests: Finn at 2. As such, the fiduciary standard enjoins the fiduciary to act in the interests of the other party selflessly and with undivided loyalty: Finn at 4. Its function is not to mediate between interests but to secure the paramountcy of one side’s interests: Finn at 27. The fiduciary principle, the Professor observed (at 26):

13. [13]

    Professor Finn’s conception was that what must be shown for a relationship to be characterised as giving rise to a fiduciary obligation is that (at 46):

14. [14]

    As has been explained by Leeming JA ([102]-[107] below), in Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd [2005] SASC 117 (Rothmore), it was held in not dissimilar circumstances to the present case that when the successor trustee was substituted as trustee and thereby acquired legal ownership of the trust assets, it became a fiduciary vis-a-vis its predecessor and was obliged not to act with respect to the assets of the trust in a way which jeopardised the predecessor trustee’s right of indemnity and its lien over the trust assets. The obligation assumed that the former trustee’s right and claim to indemnity was known to the successor trustee.

15. [15]

    This decision was followed by the primary judge in the present case in holding that the successor trustee, Jaken, owed a fiduciary obligation to its predecessor, JPG, which was breached when Jaken, knowing of JPG’s unsatisfied right of exoneration, disposed of trust assets to third parties leaving insufficient trust property from which the Respondent, Mr Naaman, who was subrogated to JPG’s right of indemnity or exoneration (as explained in Leeming JA’s reasons), could be fully indemnified.

16. [16]

    Leeming JA has demonstrated that the characterisation of the relationship between current and former trustees as fiduciary in Rothmore was not the subject of extensive reasoning and may have in fact represented an agreed or assumed position by the parties in that case which the judge (Perry J) was content to accept. So much may be accepted and, to that extent, the authority of the decision may be diminished. It does not follow, however, that this characterisation was erroneous.

17. [17]

    Whilst vulnerability is not “the touchstone of fiduciary obligation” (C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd & Anor (1996) 37 IPR 315 at 336; [1996] FCA 1079 (C-Shirt); see also John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [83]), that is not to say it is not a relevant factor in the determination of the question as to whether or not a person in one position owes a fiduciary duty to another, especially when it is coupled with other features which have been held to attract the characterisation of a relationship (or an aspect of a relationship) as fiduciary: see Johnson at 134-135, cited by Gaudron and McHugh JJ in Breen at 107. As Lehane J observed in C-Shirt, vulnerability may be a characteristic of some of those to whom fiduciary duties are owed: at 336.

18. [18]

    While it may be accepted that the factual circumstances of Johnson were far removed from those of the present case, Dixon J said that “whenever one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or a dependence or trust on his part”, “one occupying such a position falls under a duty in which fiduciary characteristics may be seen”: at 134-135. In Hospital Products, Mason J spoke of vulnerability in the sense of a person being vulnerable to abuse by a person who, by virtue of their relationship, is in a position to exercise powers or discretions to the detriment of the other person: at 97. Such a vulnerability existed on the facts of the present case.

19. [19]

    In Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 at [144], Campbell JA, describing the fiduciary obligation confirmed in Bofinger to which a mortgagee who holds surplus proceeds of sale is subject, namely not to prejudice the interests of subsequent interest holders in the surplus by reason of the manner in which the mortgagee disposes of it, said as follows:

20. [20]

    If a bailee has fiduciary obligations to a bailor (which is a proposition established by high authority: Hospital Products at 101; In re Hallett's Estate (1880) 13 Ch D 696 at 708-709; Brambles Security Services Ltd v Bi-Lo Pty Ltd [1992] Aust Tort Rep 81-161; (Court of Appeal (NSW), 19 June 1992)), it is scarcely a radical step to recognise that a successor trustee is under a similar obligation when in custody of trust assets which are charged in equity with its predecessor’s valuable right to indemnity, exoneration or recoupment. That is especially so in circumstances where:

    1. (1)

       decisions of high authority describe the former trustee’s interest, born of its right to indemnity or exoneration, as a beneficial interest in the trust assets: see Octavo at 371; Bruton at [43];

    2. (2)

       that interest is one which takes priority over the interests of ordinary beneficiaries: see [4] above; and

    3. (3)

       the former trustee is entirely out of possession of the assets of the trust: see Lemery at [40]. As Barrett J observed in Ronori Pty Ltd v ACN 101 071 998 Pty Ltd [2008] NSWSC 246 at [15], the former trustee’s right entails “a beneficial interest in the [trust] property” and “is not in the nature of a possessory security.”

21. [21]

    As explained at [6], it would anomalous if a successor trustee’s duty to those with an inferior interest in the trust property, namely the beneficiaries, should be fiduciary whilst its duty to the predecessor trustee is not. Such conceptual incoherence should be avoided. Moreover, the imposition or recognition that a fiduciary obligation arises to protect the interest of a successor trustee coheres with the importance which attaches to any trustee’s right to exoneration or indemnity out of trust assets. The existence of such a right plays a valuable societal role in encouraging the assumption of high obligations of trusteeship. Imposition of a fiduciary obligation in the context under consideration in the present case maintains “the integrity, credibility and utility of relationships perceived to be of importance in a society”, to quote Professor Finn: see [12] above.

22. [22]

    In Lemery, Brereton J said that “the former trustee is entitled to ensure the new trustee does not take steps which will destroy, diminish or jeopardise the old trustee’s right of security, which subsists in the trust assets after their transfer to the new trustee”: at [50]. A retired trustee may have no visibility, however, as to its successor’s dealing with trust property which might be wholly destructive of the former trustee’s beneficial interest in the trust assets.

23. [23]

    While the former trustee may approach the Court for relief including the appointment of a receiver in order to realise its right to indemnity secured by a lien over the trust property, such relief is only likely to be granted where the former trustee can demonstrate that its successor is declining to act in a way which would allow exoneration or recoupment by the former trustee, or where the former trustee has a basis for apprehending that its successor (which may be a company of little worth) is proposing to dispose of trust assets and distribute proceeds of sale to beneficiaries. But the former trustee may have no such knowledge and be wholly ignorant of its successor’s intentions, and its valuable right to indemnity may be eviscerated by a unilateral action by its successor which may be taken without any notice or warning. In the words of Mason J in Hospital Products, the former trustee is, in such circumstances, “at the mercy” of its successor which may sell trust assets and distribute the proceeds of sale without notice to the predecessor trustee, notwithstanding that the successor trustee is on notice of its predecessor’s superior claim for exoneration of indemnity. Any suggestion of protection by caveat will be limited to cases where some or all of the trust assets comprise interests in land.

24. [24]

    I see no reason why equity would not give “full effect to [the former trustee’s] preferred beneficial interest”, to use the language of Barrett JA in Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 at [84], by subjecting the successor trustee to fiduciary obligations in dealing with the trust property, at least provided that it is aware of the former trustee’s bona fide claim on, and unsatisfied right to exoneration or recoupment or indemnification, from the trust assets.

25. [25]

    The relevant feature of the fiduciary duty in the present case is an aspect of the duty of "absolute and disinterested loyalty": see Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43 at [67] (Ancient Order) and the cases there cited; see also Breen at 93 (“what the law exacts in a fiduciary relationship is loyalty, often of an uncompromising kind, but no more than that”). As expressed in Rothmore, it is 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 and its lien over the trust assets. That language has an affinity with that used by Brereton J in Lemery at [50], cited in [22] above.

26. [26]

    Contrary to the submissions of Mr Kelly SC, who appeared for Jaken, such a duty or obligation is not prescriptive but, classically, proscriptive: see, for example, Breen at 113; Ancient Order at [67] and, cf. Lionel Smith, “Prescriptive Fiduciary Duties” (2018) 37(2) University of Queensland Law Journal 261. It is limited in its scope, but it is no less real or important for that reason.

27. [27]

    Leeming JA at [144] below has drawn attention to [18] of Brereton J’s judgment in Lemery, emphasising the emboldened words of his Honour’s judgment: “being an equitable lien, the security is enforceable by the trustee only by judicial sale or appointment of a receiver, and not by foreclosure or by sale out of Court.” That statement is unexceptional and consistent with the long line of authority cited in support of it. The purpose of his Honour’s statement was to draw a contrast between judicial sale or the appointment of a receiver, on the one hand, and foreclosure or sale out of court, on the other hand. His Honour was also speaking only of remedies against the trust assets (see at [46]) and was not addressing the availability of other remedies such as equitable compensation including against third parties, for example. I do not read Lemery as containing a statement of the outer limit of equity’s interest in protecting the former trustee’s important right of indemnity or exoneration nor as in any way precluding the characterisation of the former trustee’s relationship to its successor as “fiduciary”.

28. [28]

    There is no requirement for a fiduciary duty or obligation to arise at the outset of a particular relationship. Bofinger is an illustration of that. To the extent that there was debate as to when the asserted fiduciary obligation arose in the present case, in my view it arose no later than when the successor trustee became aware of the former trustee’s claim to indemnity from the trust assets. Unlike and with great respect to Leeming JA and Kirk JA, I do not find this “decidedly odd”. An important feature of the onerous work of trustees is the trustee’s right to indemnity or exoneration from the trust estate in respect of liabilities properly incurred. That is a socially valuable right which survives a trustee’s retirement or resignation and its replacement by a successor trustee: see [21] above. The proprietary nature of that right is very well established, as is the fact that it is superior to the rights of the beneficiaries of the trust.

29. [29]

    Adapting the language of Professor Finn noted at [13] above, a former trustee is entitled to expect that its successor will act in its interests in ensuring that its equitable and (as in this case) contractual right to indemnity and reinstatement is not compromised or jeopardised. That entitlement has its origins in the fact that the successor is a trustee itself and should be taken to be aware that, at least once on notice of any equitable proprietary interest in the trust estate arising from its predecessor’s right to indemnity (that is, once the claim for exoneration or indemnity is communicated), that right assumes priority over that of the beneficiaries of the trust. The former trustee would also be entitled to assume that, given appreciation of that priority, its successor would owe obligations of trust and loyalty to it at least as strong as those owed to beneficiaries whose interests were inferior in terms of priority to those of the former trustee, at least pro tanto the value of that interest. On what rational or coherent basis would the successor trustee not be held to at least the same standard of loyalty in relation to rights in the trust estate which the law recognised were entitled to a higher priority than the rights of ordinary beneficiaries of the trust? The former trustee is also vulnerable to its successor’s ability to deal with the trust assets without notice to it, and in the sense referred to by Mason J in Hospital Products: see [18] above.

30. [30]

    As to the objection raised by Jaken that there may be some difficulty in reconciling the fact that a successor trustee will owe duties to the beneficiaries of the trust as well, on my preferred analysis, as to the predecessor trustee, so much is contemplated by the many decisions of the High Court that recognise that the rights of beneficiaries are subordinate to the superior (in terms of priority) rights of a predecessor trustee who has an extant right to be indemnified out of trust property. As was said in Buckle, in the passage cited at [5] above:

31. [31]

    Nor do I consider that the fact that the occasions on which the fiduciary obligation with which the present case is concerned may be engaged are likely to be relatively rare – given that, generally speaking, the former trustee will be unlikely to incur further liabilities engaging its equitable right to reinstatement or exoneration after its retirement from office – supplies a reason for not characterising the successor trustee’s obligation as fiduciary: cf. [137]-[138] below. That there will be no ongoing relationship between former and successor trustee once all liabilities of the former trustee have been paid out is, with respect, quite beside the point and only serves to highlight the fact that, before that point in time is reached, the former trustee may be vulnerable to, and at the mercy of unilateral action by, its successor in the way I have earlier described. Its proprietary interest in the trust property will be in the control of its successor.

32. [32]

    For completeness, I do not consider that the recent decision of the Privy Council in Equity Trust (Jersey) Ltd v Halabi (Jersey) [2022] UKPC 36 to which Leeming JA has referred advances or affects the analysis of the question.

33. [33]

    An important difference in my analysis of the issues to that of Leeming and Kirk JJA is that, whereas their Honours build upon the former trustee’s interest as being in the nature of a charge or lien over the trust assets, I place more weight upon the characterisation of the former trustee’s interest as a “beneficial interest in the trust estate”, to use the language of Stephen, Mason, Aickin and Wilson JJ in Octavo at 371. That being the case, and that interest being superior to the beneficial interest of the beneficiaries of the trust to whom a fiduciary duty is owed, it is surprising that that superior interest should not be protected by a fiduciary obligation upon the legal holder of the trust estate vis-à-vis a former trustee in circumstances where the successor trustee’s obligations to beneficiaries are fiduciary in nature.

34. [34]

    It follows that, in my view, grounds of appeal 3 and 4 should be dismissed. Accepting that my conclusions on the issues raised by these grounds are in the minority, I otherwise concur in the orders proposed by Leeming JA.

35. [35]

    LEEMING JA: The main issue in this appeal is both narrow and important. It is whether a successor trustee owes a fiduciary obligation to a former trustee not to deal with trust assets so as to destroy, diminish or jeopardise the former trustee’s entitlement to be indemnified from those assets, in circumstances where it was ultimately not disputed that the former trustee could obtain relief preventing a successor trustee from doing just that. The significance of the obligation being fiduciary as the primary judge found was that when the successor trustee transferred trust assets to third parties who were not bona fide purchasers for value without notice in order to defraud creditors including the former trustee, not only were the transfers voidable under statute, but the recipients and those involved were personally liable under either or both limbs of Barnes v Addy. Thus this appeal raises quite acutely the important question of when duties enforceable in equity are regarded as fiduciary duties.

36. [36]

    So far as counsel’s researches reveal, no appellate court in the common law world has held that a successor trustee owes a fiduciary obligation to the former trustee. The primary judge relied on an unreported decision of the Supreme Court of South Australia. The primary judge did not have the benefit of argument on that case, because it was supplied to his Honour in written submissions after the conclusion of a 9 day hearing. The respondent invited the primary judge to follow the unreported decision which was said to be “consistent with the basic principles”. In the appellants' written submissions to the primary judge made in response, that course was described as a “radical development of the law”, unsupported by authority or principle, and which could not be undertaken without review of the fundamental principles. In this Court, the appellants said that the decision was devoid of reasoning, and wrong in principle.

37. [37]

    A former trustee can prevent its successor dealing with trust assets in ways which would destroy, diminish or jeopardise the former trustee’s entitlement to be indemnified from those assets. That is a simple consequence of the fact that the equitable entitlement on the part of the former trustee to have recourse to trust assets to indemnify itself for expenses properly incurred has proprietary aspects which survive the trustee’s removal. To say that the successor trustee is subject to a duty not to deal with assets so as to prejudice the former trustee’s entitlement to be indemnified from those assets is merely the Hohfeldian correlative of that entitlement. Ultimately, I did not understand this to be in dispute between the parties.

38. [38]

    However, I respectfully disagree with the conclusion reached at first instance that the duty is one which is fiduciary, and which therefore engages the personal and proprietary responses against third parties who knowingly receive or participate in breach of that duty, in accordance with the principles in Barnes v Addy. My reasons for that conclusion are contained below. At their core is my view that the conclusion represents a category error, confusing proprietary and personal rights. Many persons have equitable proprietary rights in the property of others, in circumstances where no fiduciary obligation is owed to them. Every equitable mortgagee, every equitable chargee, every unpaid solicitor with an interest in a judgment or compromise and every unpaid vendor with a lien, enjoys rights which are properly regarded as proprietary, and those mortgagors, chargors, clients and purchasers are susceptible to equitable relief commensurate with those rights. But fiduciary obligations are not owed by the mortgagors, chargors, clients or purchasers to the persons with equitable proprietary rights, and that is so even though to an extent they may be vulnerable to conduct which might defeat their equitable rights. Similarly, the recognition that the former trustee has a proprietary interest in trust assets, even when those assets are held by the successor trustee, does not entail a personal relationship of trust and confidence, to which Barnes v Addy liability attaches, between former and successor trustees. That is not to deny that the former trustee may, in an appropriate case, claim trust assets now held by third parties, for example when they have been transferred by the successor trustee with the intent of defrauding creditors.

39. [39]

    The appeal also challenges some of the factual findings concerning the successor trustee’s dealings with trust assets, some aspects of which I have concluded fail while others are made out.

Background

1. [40]

   Regrettably, the events giving rise to this litigation commenced almost two decades ago. Nor will this Court’s decision resolve the dispute.

2. [41]

   The former trustee is Jaken Property Group Pty Ltd (JPG), and the successor trustee is Jaken Properties Australia Pty Ltd (Jaken). Mr Peter Sleiman was the sole director and shareholder of JPG until at least 11 August 2006. The primary judge found, and there is no challenge to the findings, that while a number of his relatives were directors of Jaken from time to time, at all times Mr Peter Sleiman was both a person who acted in the position of a director of Jaken (a de facto director) and a person in accordance with whose instructions or wishes the actual directors of Jaken were accustomed to act (a shadow director), even though he was not formally a director.

3. [42]

   JPG was appointed the trustee of the Sly Fox Family Trust in June 2005. Mr Kostas Augerinos was the settlor. Mr Peter Sleiman was the “Specified Beneficiary”, the “Default Beneficiary” and also the “Appointor” of that trust. A wide power was conferred upon the trustee to distribute or accumulate income, and to pay capital, to the Specified Beneficiary or (among others) any spouse, child, grandchild, niece, nephew, sibling, parent, grandparent or any company owned by one of the above or of which one of the above was a director.

4. [43]

   In 2005, JPG acquired two apartments on Cavanagh St, Southbank in Melbourne for $640,000, and land at William St, Kings Cross, on which O’Malley’s Hotel operated, for $8,900,000. In 2006, JPG acquired property at Cowper St, Granville for $750,000. I shall use the same abbreviations as the primary judge and refer to the Victorian Properties, the Kings Cross Property and the Granville Land. There were issues at trial, and to a lesser extent on appeal, as to whether those assets were held by JPG as assets of the Sly Fox Family Trust.

5. [44]

   The appellants to this appeal are Jaken and persons and companies found to have been involved in Jaken’s dealings with the Victorian Properties, the Kings Cross Property and the Granville Land. Mr Tony Sleiman is the brother of Mr Peter Sleiman, and for a time was Jaken’s sole director. The sole director and shareholder of Superior Family Investments Pty Ltd is Ms Samantha Sleiman, who is Mr Peter Sleiman’s wife. Superior acquired the Granville Land in 2012. The sole director and shareholder of PSJK Holdings Pty Ltd was originally Mr Peter Sleiman, but he was replaced by Ms Samantha Sleiman in 2010. PSJK acquired the Victorian Properties in 2012. The other two appellants, Powerhouse Corporation Pty Ltd and O’Malley’s Hotel Pty Ltd, were involved in transactions concerning the Kings Cross Property and the hotel business conducted on those premises which are described in more detail below.

6. [45]

   The Court was told that there are other proceedings, between the same parties and also involving the lender to Mr Sleiman and his companies, the National Australia Bank. The Court was told that there had been further transfers of title of some of the properties, including the Granville Land, to a company called Samanril Pty Ltd. The primary judge heard an application concerning this transfer, after his Honour had reserved judgment for somewhat longer than a year, and noted at [282]-[283] that the dispute had been resolved by undertakings. More recently, Mr Naaman has been granted interlocutory equitable relief based on a claim under s 37A of the Conveyancing Act 1919 (NSW) in respect of the transfer of the Granville Land by Superior to Samanril: Jaken Properties Australia Pty Ltd v Naaman [2023] NSWSC 268 at [45]. As will be seen, the primary judge contemplated a further hearing in the litigation of which he was seized, and it is also clear that the litigation presently before this Court is far from the entirety of the current proceedings bearing upon the same property.

7. [46]

   The sole respondent is Mr Anthony Naaman, who (in circumstances summarised immediately below) is a judgment creditor of the former trustee JPG in the amount of $3,446,755.55 and who is entitled by way of subrogation in equity to the rights of JPG to be indemnified out of the assets of the Sly Fox Family Trust for liabilities incurred by it, including the judgment debt. The existence of JPG’s right of indemnity, that it extends to the judgment, and Mr Naaman’s entitlement to subrogation, are established by orders of this Court which are not subject to any appeal.

8. [47]

   In August 2006, JPG commenced proceedings against Mr Craig Wheeler and Mr Naaman, based on a share sale agreement. On 11 August 2006, orders were made that JPG should pay Mr Naaman’s costs in relation to a notice of motion. The following week, JPG discontinued the proceedings by consent, with orders reserving Mr Naaman’s right to bring further proceedings.

9. [48]

   According to documents dated 11 August 2006 and filed with ASIC in January 2007, Mr Peter Sleiman was replaced as sole director and sole shareholder of JPG by his nephew Mr Raymond Saab.

10. [49]

    By statement of claim dated 6 November 2006, Mr Naaman commenced proceedings in the Common Law Division of this Court against JPG seeking “Judgment in the sum of $2,000,000” together with interest and costs. He claimed to be entitled to that amount, based on a “Guarantee Agreement” between him and JPG, by reference to the unpaid amounts of purchase price of a share sale agreement entered into between JPG as purchaser and Mr Naaman and two other men as vendors. The factual background is summarised in this Court’s judgment in Naaman v Sleiman [2015] NSWCA 259 at [6]-[16]. Nothing relevant to this appeal turns on the details.

11. [50]

    On 12 January 2007, Jaken was registered, with Mr Tony Sleiman as its sole director. On 13 February 2007, JPG, Jaken and Mr Peter Sleiman entered into a “Deed of appointment and retirement of trustee of discretionary trust” by which JPG retired as trustee of the Sly Fox Family Trust and Jaken was appointed trustee. The deed included the following provisions:

12. [51]

    Legal title to the Victorian Properties was transferred from JPG to Jaken by transfer dated 13 February 2007 but not registered until 5 February 2008. Jaken also became the registered proprietor of the Granville Land and the Kings Cross Property.

13. [52]

    On 25 February 2007 Mr Naaman obtained costs certificates based on the orders for costs in his favour in the discontinued proceeding, in the amounts of some $25,000. On 27 February 2007, a liquidator was appointed to JPG. The liquidator’s report as to the company’s affairs recorded that the only liability was a $2,500 unsecured debt owing to Kostas Augerinos and Associates, the firm which had been accountants to the Sleiman family. It seems that the costs assessor’s certificate of determination was sent to the parties on or around 6 March 2007, although why an unquantified liability to Mr Naaman for costs was not recorded in the liquidator’s report is unclear. The winding up of JPG effected a stay of Mr Naaman’s proceedings in the Common Law Division: Corporations Act 2001 (Cth), s 500(2). JPG was subsequently deregistered, and the 2006 proceedings dismissed.

14. [53]

    In July 2009, Mr Naaman commenced separate proceedings against Mr Peter Sleiman and Jaken. By order made on 14 March 2013, JPG was re-instated and joined to these proceedings.

15. [54]

    On 5 March 2014, Pembroke J entered judgment in favour of Mr Naaman against JPG for $2,000,000 plus interest. The basis on which that occurred was not clear from the appeal books, but this Court was told it was a default judgment because JPG had not filed a defence. That judgment was set aside by consent on 18 June 2014. On the same day, also by consent, Rein J granted an injunction preventing Jaken from disposing of, dealing with other than in the usual course of business, or further encumbering or diminishing the value of the property known as “the O’Malley’s Hotel” until further order of this court. This was significant to ground 8 of the present appeal, and related to two bases on which Mr Naaman sought to establish liability at trial. Mr Naaman’s claim that there was a tortious interference with the contract constituted by the consent to make the injunction was rejected at trial, and no attempt was made in this Court to challenge that rejection. However, Mr Naaman’s claim that there was a contravention of the order, resulting in the voidness for illegality of aspects of the “$3.6 Million Drawdown” is one aspect of ground 8 which is addressed below.

16. [55]

    Mr Naaman’s 2009 proceeding was reheard over three days in December 2014, and dismissed: Naaman v Sleiman [2014] NSWSC 1869, with orders being made in March 2015. However, an appeal was heard by this Court (differently constituted) in August 2015, and in September 2015 Mr Naaman’s appeal was allowed in part, with the proceedings being remitted to the Equity Division of the Supreme Court for determination of the quantification of damages for loss of bargain following termination of the Deed: Naaman v Sleiman [2015] NSWCA 259.

17. [56]

    On 25 February 2016, Young J entered orders in favour of Mr Naaman and JPG as follows:

18. [57]

    No appeal has been brought from those orders, which continue to bind the parties.

19. [58]

    In substance, although not in form, Mr Naaman’s proceedings were by way of what might loosely be called equitable execution of the unchallenged judgment in his favour entered on 25 February 2016. In Mr Naaman’s closing written submissions following the hearing before the primary judge, the litigation was described as “enforcing his judgment”. That was the basis on which the appeal to this Court was conducted by both sides. I shall return below to what is meant by “equitable execution”.

20. [59]

    In short, what has happened in the ensuing six years are attempts to enforce those orders, coupled with other rights to which Mr Naaman claims that he is entitled, and which the appellants deny. As will be seen below, at the forefront of the appellants’ submissions at trial and in this Court was the proposition that the only rights to which Mr Naaman was subrogated were judicial sale or the appointment of a receiver to the property of the trust, together with interlocutory relief.

21. [60]

    The proceedings heard and determined by the primary judge were commenced by summons filed by Jaken on 23 January 2019. In substance Jaken’s claim was directed to removing a caveat on the Kings Cross Property. By cross-claim, Mr Naaman sought a suite of relief, which may be summarised as follows:

    1. (1)

       The transfer of the Granville Land by Jaken to Superior in October 2012 was voidable pursuant to s 37A of the Conveyancing Act 1919 (NSW) or a sham, and the transfer by Jaken to PSJK in March 2013 of the Victorian Properties was voidable pursuant to the Victorian equivalent, such that the land was property of the Sly Fox Family Trust (prayers 7-10 and 28-35);

    2. (2)

       Transactions resulting in the paying out of $3.6 million, and increasing the indebtedness of Jaken (the $3.6 Million Drawdown), were voidable pursuant to s 37A of the Conveyancing Act or a sham, such that money was held as trust property of the Sly Fox Family Trust (prayers 15-18);

    3. (3)

       An order to replace Jaken as trustee of the Sly Fox Family Trust, or alternatively that a receiver be appointed to Jaken and for the Sly Fox Family Trust to be wound up (prayers 20-21);

    4. (4)

       Equitable compensation, account and damages, together with interest and costs (prayers 22-27).

22. [61]

    Many of the prayers directed to the Kings Cross Property were outside the scope of this appeal, and have been omitted from the summary above. The primary judge recorded at [175] that the appellants accepted that transactions which had purported to transfer the assets, including the Kings Cross Property, to two trusts of which Jaken was also the trustee were ineffective. Further, the primary judge deferred consideration of the appointment of a receiver, as well as all quantification of pecuniary remedies, to a second hearing (at [507]).

23. [62]

    After judgment was reserved, receivers were appointed to the Kings Cross Property, and there were further applications concerning dealings with the Granville Land to which I shall refer below.

The reasons of the primary judge

1. [63]

   The primary judge delivered a very large judgment of 508 paragraphs in April 2022 following a nine day trial in November 2020. There were many more issues at trial than on appeal. The first half of the reasons for judgment deal with the numerous transactions leading to the replacement of JPG as trustee and the dealings with the Victorian Properties, the Granville Land and the Kings Cross Property (and many others), which need not be summarised in any greater detail at this stage. His Honour then at [285]-[289] identified the following common ground:

2. [64]

   A great deal of the analysis in the reasons for judgment explained why his Honour made the very serious findings that not only was Mr Peter Sleiman an unreliable witness whose evidence could not be accepted as truthful unless it was against interest or corroborated by reliable contemporaneous documents (at [301]), but also that a series of documents produced by him were inauthentic. These included:

   1. (1)

      a lease purportedly entered in June 2011 for the hotel, which had been back-dated and was “likely to have been prepared around the time Peter Sleiman swore the affidavit for the purposes of attempting to persuade the Court that the Kings Cross Property was worth less than it in fact was” (at [321]);

   2. (2)

      an email purportedly dated 11 April 2014 concerning the removal of the caveats was a fabrication (at [326]);

   3. (3)

      a document purporting to be a bank statement which was inauthentic, and “used by Peter Sleiman in his affidavit made pursuant to the Rein J Orders to present a different picture about the financial condition and income of the Sly Fox Trust to what it actually was” (at [332]);

   4. (4)

      a document known as the “Tea Deed” was “no more than an inept attempt by Peter Sleiman to concoct evidence in support of Jaken’s case” (at [355]), and

   5. (5)

      a document purporting to vary the Sly Fox Family Trust, which was inauthentic (at [358]).

3. [65]

   None of those findings was challenged on appeal.

4. [66]

   Nor was there any challenge to the findings that Mr Peter Sleiman was both a de facto director (at [305]-[312]) and a shadow director (at [313]) of Jaken.

5. [67]

   The appellants invoked what Brereton J had said in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [18]:

6. [68]

   However, the primary judge rejected the appellants’ submission that Mr Naaman was not entitled to much of the relief sought by him. His Honour said at [373] that the appellants had overlooked a later passage in Lemery at [50] where Brereton J had said:

7. [69]

   After addressing what had been said in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation of the Commonwealth of Australia (2009) 239 CLR 346; [2009] HCA 32 at [43] and Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 at [80], his Honour said at [377] that the next step was to identify what further assistance equity will give a former trustee such as JPG and, by subrogation to JPG’s rights, Mr Naaman in relation to trust assets in which JPG had a preferred beneficial interest where those assets had been transferred to a recipient who was not a bona fide purchaser for value without notice. His Honour summarised the position as:

8. [70]

   His Honour also relied upon Ron Kingham Real Estate Pty Ltd v Edgar [1999] 2 Qd R 439 at 443-444 for two propositions:

9. [71]

   The primary judge placed considerable emphasis upon an unreported decision of Mansfield J in Rothmore Farms Pty Ltd (in prov liq) v Belgravia Pty Ltd [1999] FCA 745, where the facts bore some resemblance to those in the present case. A successor trustee vested the whole of the trust assets in another defendant. Mansfield J held that the first trustee’s right to indemnity survived its removal as trustee, and could be asserted against the recipient.

10. [72]

    After an inquiry and account had been conducted against some of the defendants, the litigation came before Perry J on a claim for “damages and/or equitable compensation” against other defendants for the deficit in trust assets: Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd [2005] SASC 117. Perry J regarded the second trustee as owing a fiduciary obligation to the former trustee. In light of the proposition being accepted by the primary judge, and its forming the basis of much of the relief ultimately ordered, and the direct attack upon it in this Court, it is appropriate to reproduce the paragraphs of the judgment as they had been reproduced by the primary judge:

11. [73]

    The primary judge concluded at [389] that “Perry J’s analysis of the relationship between the successor trustee and the former trustee as fiduciary, or the successor being a constructive trustee of the trust assets to protect the former trustee’s right of indemnity is correct”.

12. [74]

    The primary judge also relied on statements by Young J in McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 at 637:

13. [75]

    The primary judge concluded at [391] that:

14. [76]

    The primary judge rejected Mr Naaman’s submission that the transfers impugned by him were shams. His Honour found at [400] that:

15. [77]

    His Honour’s conclusion meant that it was unnecessary to resolve two further points. The first was whether the orders made by Young J enlarged or provided an independent source of Mr Naaman’s rights. His Honour said that were it necessary to do so, he would find that the orders were declaratory of Mr Naaman’s rights but did not themselves create or enlarge them: at [394]. The second was the effect of a deed of assignment entered into by JPG and its liquidator and Mr Naaman, whereby claims were assigned to Mr Naaman. His Honour said at [397]-[398]:

16. [78]

    The primary judge found against the appellants in relation to Mr Naaman’s standing to bring claims which were property of the trust, the existence of a fiduciary duty, and the factual matters referred to above in relation to the Kings Cross Property and business, the Granville Land, the $3.6 Million Drawdown and the Victorian Properties. It will be most convenient to address the evidence and reasoning of his Honour in relation to those dealings simultaneously with grounds 7, 8 and 9 below.

17. [79]

    His Honour concluded at [506]-[507]:

18. [80]

    His Honour thereupon proceeded to answer some 45 agreed questions (many involving sub-questions) raised for determination. It is from orders reflecting those answers that this appeal purports to be brought. The further hearing concerning pecuniary relief has not occurred, at least so far as this Court has been made aware. The status of the proceedings involving the bank, including the claim for damages following its wrongful exercise of a power of sale, is unclear.

Leave to appeal is required

1. [81]

   Plainly the dispute between the parties is not at an end. The fact that there is to be a further hearing means that the orders are interlocutory for the purposes of s 101(2)(e) of the Supreme Court Act 1970 (NSW). It is not quite clear whether any order was made, pursuant to UCPR r 28.2, identifying questions for separate determination (the reasons for judgment suggests this occurred merely by way of agreement between the parties: see at [9]) but if there were, s 103 would make an appeal available only with leave.

2. [82]

   When these matters were raised during the hearing, Mr Kelly SC, who with Mr Maroya appeared in this Court as they did at first instance, sought leave. There should be a grant of leave. The decision gives rise to a question of principle. Further, resolving that question at this stage will avoid the risk of the second hearing proceeding on a false basis. In any event leave was not opposed.

3. [83]

   I am conscious that things seem clearer with the benefit of hindsight, but the wisdom of identifying no fewer than 45 questions and resolving most of them but not making final orders is far from clear. Courts do not have to accede to litigants’ requests – even if (as here) made jointly – to sever the issues in such a fashion. Further, some of the questions are imprecise. There are particular difficulties concerning the questions directed to the “$3.6 Million Drawdown”, a term which is not clearly defined, and which has given rise to findings of breach of an order of the Court.

Overview of issues on appeal

1. [84]

   There were three main areas of challenge in the appeal.

2. [85]

   The first and second were pure questions of law, and inter-related with one another. They concern the remedies to which a former trustee is entitled, and the standing to sue.

3. [86]

   The appellants repeated the substance of the submissions they had made at first instance, and said (grounds 1 and 2) that the passage from Lemery Holdings reproduced above meant what it said, with the result that JPG was at general law only entitled, pursuant to the orders made by Young J, to the appointment of a receiver (no judicial sale being sought), and was not entitled to sue for claims based on a breach of fiduciary duty. During the hearing Mr Kelly accepted that Mr Naaman had standing to seek interlocutory relief in respect of a proposed dealing with trust assets. It was also common ground that claims under s 37A of the Conveyancing Act were available.

4. [87]

   The appellants also denied that Jaken owed a fiduciary obligation to JPG (grounds 3, 4 and 5), which was the basis upon which the primary judge granted a deal of the relief involving parties other than Jaken to Mr Naaman. Ground 6 is parasitic upon these grounds. It will be convenient to address these grounds, which were the principal grounds advanced by the appellants, first.

5. [88]

   The third class of appeal grounds amounted to challenges to the factual findings that each of the Kings Cross Property and business, the Granville Land and the Victorian Properties had been transferred, and the $3.6 Million Drawdown made, in ways that could be attacked by Mr Naaman or JPG (grounds 7-9).

The parties’ submissions on grounds 3-5 of the appeal

1. [89]

   The appellants advanced no fewer than 12 reasons why Jaken did not owe a fiduciary obligation to JPG, which were as follows:

   1. (1)

      The fiduciary obligation would be inconsistent with the duty of single-minded loyalty owed by the trustee to the beneficiaries;

   2. (2)

      The actions of the former trustee in enforcing an equitable charge or lien are actually or potentially in conflict with the interests of the beneficiaries;

   3. (3)

      Jaken was trustee of a trading trust, and was constantly buying and selling trust assets, but there was no basis upon which a successor trustee would be obliged to engage with a former trustee to pass on business information concerning its future acquisition or disposal of trust assets;

   4. (4)

      If a fiduciary obligation were to arise at all, it would arise at the point of appointment, which would place the successor trustee in an impossible position of conflict at the moment of appointment.

   5. (5)

      Where as here there was an agreement between JPG and Jaken which expressly addressed the former trustee’s indemnity, there was no room for a fiduciary obligation.

   6. (6)

      The former trustee’s equitable charge or lien was in the nature of an hypothecation, which allowed an application for judicial sale or the appointment of a receiver, but gave no right to possession, from which it followed that “anything to do with custody or guardianship of a piece of property” was “take[n] out of the equation altogether as a basis for any fiduciary responsibility”.

   7. (7)

      The former trustee was at arm’s length with its successor in terms of enforcing its equitable charge or lien, and could act self-interestedly.

   8. (8)

      Just as a mortgagor owed no fiduciary duty to a mortgagee, so too a successor trustee owed no fiduciary duty to the former trustee.

   9. (9)

      The interest of the former trustee was confined to an interest in the property held on trust, and indeed, until any right of exoneration had been satisfied, it was impossible to ascertain what the trust property was: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [48]; CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; [2005] HCA 53 at [51].

   10. (10)

       The terms of the trust deed were inconsistent with an obligation breach of which could give rise to responsibility for loss or damage.

   11. (11)

       By reference to Equity Trust (Jersey) Ltd v Halabi (Jersey) [2022] UKPC 36 at [171], where it was said:

   12. (12)

       In the facts of this case, from March 2007 Mr Naaman and from May 2007 JPG were each asserting interests over land held on trust, each having lodged a caveat, which was said to demonstrate that from at least that time the relationship was adversarial, and inconsistent with a relationship of loyalty involving trust and confidence.

2. [90]

   Mr Naaman’s written submissions proceeded on the uncontroversial basis that JPG’s right of indemnity gave it an equitable proprietary interest in trust assets before its retirement, which continued after JPG retired. From there, Mr Naaman advanced a number of submissions, which may be summarised as follows.

3. [91]

   First, it was said that “Jaken held property which was, in equity, the property of JPG”, and that where one person holds property for the benefit of another the relationship in equity is one of trustee to beneficiary. Thus it was put that “the relationship as between JPG and Jaken with respect to JPG’s equitable proprietary interest answers the description of trustee and beneficiary: a person who has the ‘custody and administration of property on behalf of others’ is a trustee in the ordinary sense”, by reference to Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35 at [113].

4. [92]

   Secondly, this was said to be consistent with what was said in Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524; [2019] HCA 20 at [83]:

5. [93]

   It was also said to be consistent with what was said in Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 at [84]:

6. [94]

   Mr Naaman said that the “full effect” to which Barrett JA referred in Agusta was that Jaken was a constructive trustee with respect to JPG’s proprietary interest.

7. [95]

   Thirdly, it was said that “Jaken was, pursuant to the Deed of Appointment (and in equity) bound to apply the property constituted by JPG’s right of exoneration for JPG’s benefit”.

8. [96]

   Fourthly, Mr Naaman rejected the appellants’ submissions that the fiduciary duty is “unorthodox and unsupported by authority” saying that it was not merely consistent with Perry J’s decision in Rothmore Farms, but also conformed to the principles in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64. It was said that JPG “reposed a special trust and confidence in Jaken that it would, at the very least, protect its equitable proprietary right, constituted by the right of indemnity which subsisted in [the trust] property” and that the relationship was one which left JPG vulnerable to Jaken in the language of Mason J in Hospital Products.

9. [97]

   Fifthly, Mr Naaman also drew upon an analogy with the position of a mortgagee holding surplus proceeds to account to subsequent interest-holders, which in Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 was regarded as being fiduciary in nature so as to engage the principles in the second limb of Barnes v Addy.

10. [98]

    Sixthly, Mr Naaman denied that the duty was in actual or potential conflict with the interests of the beneficiaries, because the obligation was the same, namely, to protect the trust property. He opposed the appellants being permitted to rely upon the provisions of the trust deed, this not having been raised at trial but also on the more substantive grounds identified above, and because that clause did not apply to transactions intended to defraud creditors, and the relationship between JPG and Jaken was governed by the Deed of Appointment. He rejected a submission that Perry J’s decision in Rothmore Farms was distinguishable on the basis that the trust in that case had been brought to an end.

11. [99]

    The primary judge did not have the benefit of full argument on the existence of a fiduciary obligation owed by a successor trustee to a former trustee. Essentially all that was said by Mr Naaman in the closing written submissions in chief was:

12. [100]

    The written submissions also invoked what had been said in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97; [1984] HCA 64 to the effect that Jaken had the “opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position”.

13. [101]

    Oral submissions to the primary judge took the matter no further. Thus it was said that “there must be a relationship [between former and successor trustee] and the legal relationship in my submission must be one of trust”, placing reliance on the CGU case. The primary judge asked, and Mr Afshar confirmed, that there was no authority supporting the fiduciary obligation for which he contended from which I infer that at that stage counsel was unaware of the Rothmore Farms decisions (which had not so far as I can see hitherto been mentioned). Pursuant to leave granted at the conclusion of oral submissions at trial, the parties supplied further submissions on three topics, including Mr Naaman’s standing. Mr Naaman’s post-hearing submissions dated 7 December 2020 addressed both Rothmore Farms decisions, in language which suggested they were being invoked for the first time.

14. [102]

    In many respects the Rothmore Farms litigation was very unsatisfactory. The trial was heard in 1999 in the Federal Court, but the claim against third parties who had not received trust property took place in 2005, in the Supreme Court of South Australia. The parties had the misfortune of obtaining final orders in the Federal Court a week before Re Wakim: ex parte McNally (1999) 198 CLR 511; [1999] HCA 27 found the purported conferral of jurisdiction in non-federal matters invalid. The parties had the further misfortune, recorded by Perry J at [10]-[12], that Mansfield J had omitted to determine the claim for “damages and/or equitable compensation”, and that when it became clear that there was only limited recovery from trust assets, it was only in November 2002 that a further order was made to determine that claim. In the judgment on re-opening the 1999 orders (Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd (No 2) [2002] SASC 390), Perry J concluded at [57]:

15. [103]

    But in Rothmore Farms Pty Ltd (in prov liq) v Belgravia Pty Ltd [1999] FCA 745 Mansfield J made no finding that a fiduciary duty was owed by successor trustee to a former trustee. His Honour recorded a claim that Belgravia owed a fiduciary duty at [126] but having found that the former trustee’s equitable charge or lien survived its removal as trustee: at [36]-[42], that the recipients knew of the former trustee’s equitable charge or lien at [114]-[117], [172], that one of the transfers was “not a bona fide transaction at all” at [171], and that (in the alternative) the transfers had been intended to defraud creditors at [123]-[124], [173]-[174], his Honour indicated at [175] that he would not determine the other claims. In other words, Mansfield J, faced with a multitude of claims, expressly declined to determine whether the successor trustee owed a fiduciary duty to its predecessor. There can surely be no subsequent judgment of Mansfield J determining that issue, because Re Wakim; Ex parte McNally (1999) 198 CLR 511; [1999] HCA 27 was delivered only days later.

16. [104]

    Turning to the decision of Perry J, there is nothing on the face of the reasons to suggest that the existence of a fiduciary duty was argued, and the impression gained from reading it is that it was not argued. For the trial judge noted at [90] that “[c]ounsel on both sides argued the case as though it fell to be determined by reference to what are sometimes described as the second limb of the principles which find expression in Barnes v Addy” and recorded the bold submission at [96] that there had been no dishonesty for the purposes of second limb liability. Having recorded those submissions, both of which his Honour was, with respect, appropriately critical, it would be passing strange if there had been any substantive argument on the existence of fiduciary obligation which was wholly unrecorded in the judgment. I think the likelihood is that the existence of a fiduciary obligation was assumed on the incorrect basis that it had been established by the Federal Court, and the parties chose to contest other aspects of Barnes v Addy liability.

17. [105]

    The statement at [73] upon which the primary judge relied is not preceded by any reasoning justifying the conclusion. Nor is it followed by any such reasoning. The immediately following paragraphs (which were not reproduced by the primary judge) deal with All Benefit Pty Ltd (in liq) v Registrar-General (1993) 11 ACSR 578, a decision of Master Burley refusing an interlocutory injunction. This does not bear on the point. There is nothing in the balance of the reasons by way of reasoning or argument to support the conclusion.

18. [106]

    If I am correct to infer that there was no argument as to the existence of a fiduciary obligation, then Rothmore Farms is not authority which supports Mr Naaman’s submission or the primary judge’s conclusion. Decisions are not authority for what was agreed or assumed: CSR Ltd v Eddy (2005) 226 CLR 1; [2005] HCA 64 at [13]; Davis v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 10 at [42], [182]. But even if that is not so, the appellants were nonetheless correct to submit that:

19. [107]

    While Mr Naaman contended that Rothmore Farms No 2 was correct in principle, he did not submit, nor could he submit, that the conclusion was supported by any principled reasoning.

20. [108]

    Mr Afshar, who appeared for Mr Naaman at trial and in this Court, deferred addressing on the fiduciary duty until the afternoon of the second day of the appeal (although he commenced his address on the afternoon of the first day). He was confronted with difficulties of timing concerning when the fiduciary duty arose:

21. [109]

    As counsel in effect acknowledged, there is really no answer to those points. It cannot possibly be the case that equity would impose a fiduciary obligation upon a successor trustee in favour of a former trustee in circumstances where the successor trustee is in breach even if there was no basis for thinking that the former trustee had any entitlement to be indemnified. If that were not so, then a trustee would be at risk every time it made a distribution, and even if it complied with a Saunders v Vautier direction to transfer trust property to a presently entitled beneficiary.

22. [110]

    Mr Naaman recognised the difficulties with his primary formulation of fiduciary duty, and advanced a secondary submission, which was that there was a breach of duty when a successor trustee distributed assets without making provision for a reasonably arguable claimed entitlement by the former trustee of which the successor trustee was aware. Ultimately, he acknowledged that notice was an essential aspect of the duty:

23. [111]

    Mr Naaman submitted that if a trustee was confronted with a large claim by a former trustee, it would not be permitted to make distributions of income or capital to beneficiaries insofar as they might prejudice the former trustee’s entitlement. He maintained that it was not necessary for the successor trustee to make any inquiry, but that when the successor became aware of the claim, its conscience was bound.

24. [112]

    By way of further alternative, based on what was said in Agusta about equity giving “full effect” to the entitlement of a former trustee, Mr Naaman submitted that equity should find that the properties transferred by Jaken were held on constructive trust by the recipients, even if no fiduciary duty were owed. The legal mechanism by which that result was achieved was not stated. The submission is inconsistent with principle, and with Deane J’s salutary reminder in Muschinski v Dodds (1985) 160 CLR 583 at 615; [1985] HCA 78:

25. [113]

    The same point was made by Nettle JA, writing for the Victorian Court of Appeal, in Yard v Yardoo Pty Ltd & Ors; Yard & Ors v Yard [2007] VSCA 35 at [80]-[82].

26. [114]

    Mr Naaman reiterated that what drove Perry J to the conclusion that there was a fiduciary obligation was “the logical path to findings and tracing the asset”, on the basis that “when one holds something for someone else that doesn’t belong to that person who holds it, … that then gives rise to a fiduciary obligation”.

Jaken does not owe a fiduciary duty to JPG (grounds 3-5)

1. [115]

   As refined during oral addresses, the question of principle dividing the parties, concerning whether a current trustee owed a fiduciary obligation to a successor trustee, was considerably narrowed.

2. [116]

   It was common ground that the former trustee had an entitlement to apply for judicial sale or the appointment of a receiver over trust assets in order to discharge its liability to a third party, in aid of its right of indemnity. It was common ground that, in aid of that entitlement, the former trustee could obtain interlocutory relief to prevent the transfer of trust assets, at least in some circumstances. This accorded with what had been said, after reference to the authorities, by Brereton J in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [50]:

3. [117]

   I do not understand anything said more recently in Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524; [2019] HCA 20 to detract from that reasoning. Nor did I understand either side of this appeal to submit to the contrary.

4. [118]

   The conceded availability of interlocutory injunctive relief is at least a partial answer to the spectre invoked by the primary judge at [390]-[391] that, faced with fraudulent conduct by a successor trustee, equity would not dismiss a suit with costs. But it is of course important to bear in mind that “where interlocutory injunctive relief is sought in a Judicature system court, it is necessary to identify the legal (which may be statutory) or equitable rights which are to be determined at trial and in respect of which there is sought final relief which may or may not be injunctive in nature”: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63 at [91] (footnotes omitted). The conceded entitlement to appoint a receiver is sufficient to entitle JPG to obtain interlocutory relief.

5. [119]

   The effect of a receivership order was described by Lawrence Collins LJ writing for the Court of Appeal in Masri v Consolidated Contractors International Company SAL [2009] QB 450; [2008] EWCA Civ 303 at [52]-[57]:

6. [120]

   In Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 3) (2016) 92 NSWLR 457; [2016] NSWSC 1452 at [16], Emmett AJA said:

7. [121]

   Many authorities may be found speaking of the limited entitlement conferred by the trustee’s “charge or lien” over trust assets in support of a trustee’s right of indemnity. Sykes & Walker, The Law of Securities (5th ed, 1993, Lawbook Co) at p 198 unambiguously confirms that the chargee’s remedies are the appointment of a receiver or judicial sale.

8. [122]

   In Melbourne Tramways Trust v Melbourne Tramway & Omnibus Company Ltd (1887) 13 VLR 487 at 490, the Full Court of the Supreme Court of Victoria construed a reference to “chargeable” in a statute, and said:

9. [123]

   In Davies v Littlejohn (1923) 34 CLR 174, Knox CJ said at 184 that a vendor’s lien “can only be enforced when it has been established by judicial decree, and the method of enforcing it is by the sale of the land over which the lien exists.”

10. [124]

    In Hewett v Court (1983) 149 CLR 639 at 663; [1983] HCA 7, Deane J said:

11. [125]

    All of the foregoing supports the appellants’ submissions. However, there may be a danger in syllogistic reasoning which turns on the conclusionary language of “charge or lien” and deploys principles in other contexts to resolve JPG’s claim. That is because those labels used to describe the proprietary aspects of a trustee’s right of indemnity while convenient for many purposes may be an unsafe component in the legal analysis necessary to resolve these grounds of appeal. In truth, the proprietary aspects of the former trustee’s entitlement are sui generis and are distinct from principles applicable to competing claims which, at a high level, might seem broadly analogous, such as (a) second mortgagee versus first mortgagee possessed of a surplus, (b) solicitor asserting a lien over the fruits of a judgment versus a former solicitor and (c) equitable chargee versus chargor.

12. [126]

    This is the point made by Bell, Gageler and Nettle JJ in Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth at [83] concerning the fact that the trustee’s entitlement arises “endogenously” and may be contrasted with a charge or lien comparable to a synallagmatic security interest over property of another, on which Mr Naaman relied. I respectfully agree with what was said in the immediately following paragraph of the reasons:

13. [127]

    It is better to proceed from first principles, and ask what is the basal nature of the interest in respect of trust property enjoyed by a former trustee, and to examine whether, by reference to that interest there is a relationship between former and successor trustee which is properly to be characterised as fiduciary. Further, it is steadily to be borne in mind that the characterisation of the relationship only matters for a particular purpose. In the present case, the existence of a fiduciary obligation was an indispensable element of the liability of third parties for knowing assistance and knowing receipt pursuant to Barnes v Addy, and it was one basis for declaring assets to be held on constructive trust.

14. [128]

    There is, with respect, a degree of awkwardness in the conclusion that a fiduciary duty was owed. The former trustee had a right to be indemnified out of the trust property. Equity protects that right by granting to the trustee an interest in the trust property, and that interest survives the termination of the trusteeship. The former trustee also had the benefit of the indemnity in cl 1.5 of the deed. Yet what is sought, by creating a fiduciary obligation owed by successor trustee to former trustee, is to create a personal obligation between the two deriving merely from the fact that the proprietary interest survives and, perhaps also, from the contractual indemnity.

15. [129]

    I cannot accept Mr Naaman’s first point, that merely having custody and administration of property on behalf of others converts that person into a trustee. For one thing, it proves far too much: not every agent is a trustee. Nor is a bank holding its customer’s valuables in a vault, or a cloakroom attendant holding a patron’s coat, or a smash-repairer in possession of a motor vehicle being repaired. Those examples, to which might be added the position of stakeholders, library members who borrow a book, pawnbrokers, and many others, illustrate the force of the qualifying words omitted from Mr Naaman’s citation from Legal Services Board v Gillespie-Jones, namely, “unless there is something in the circumstances of the case to indicate otherwise”. True it is that some bailees owe fiduciary obligations, but as Peter Gibson J explained (after referring to Sir George Jessel MR’s own qualification in Kirkham v Peel (1880) 43 LT 171 of the generality of a statement made by him in Re Hallett (1880) 13 Ch D 696 only a few months earlier) in Re Andrabell Ltd [1984] 3 All ER 407 at 414 one “has to examine the relationship in each individual case to see whether it is fiduciary in nature”: see N Palmer, Palmer on Bailment (3rd ed, Thomson Reuters, 2009) pp 234-235. Likewise, it is to misread Barrett JA’s careful language in Agusta to infer that his Honour was implying that the “full effect” was the creation of a relationship of trustee and beneficiary. That is contrary to what his Honour said in the preceding paragraph:

16. [130]

    His Honour explicitly recognised the limited rights enjoyed in relation to the preferred beneficial interest to obtain equitable execution through the sale of the land and property by a Court-appointed receiver.

17. [131]

    Another example makes the same point. Trustees not uncommonly hold Torrens system land on trust which is mortgaged. The mortgagee has a proprietary interest in the land, which takes priority over the beneficial interest of beneficiaries. The mortgagee can prevent an in specie distribution to the beneficiaries. It can do so even if its mortgage is not registered, although in that case its rights will be more vulnerable to an exercise of power by the trustee who is the registered proprietor. But the trustee does not owe a fiduciary obligation to the mortgagee, still less is there a constructive trust. This is a sufficient answer to Mr Naaman’s reliance on what was said in Hospital Products about vulnerability.

18. [132]

    Another example may be seen in a solicitor’s entitlement to the fruits of litigation, amounting to a security for the client’s obligation to pay the solicitor’s costs, which Sir Frederick Jordan famously explained in Ex parte Patience; Makinson v The Minister (1940) 40 SR NSW 96 at 100:

19. [133]

    Sheller JA, with whom Meagher JA agreed, observed in Grogan v Orr [2001] NSWCA 114 at [58] that “the solicitor has always been treated as possessing equitable rights in the judgment independently of any declaration of those rights, and the court’s assistance is invoked not to create the rights but to enforce them”. That does not mean that the client owes the solicitor a fiduciary obligation. Further, the entitlement is available even if the solicitor is not on the record when the judgment or compromise is made, so long as there was a sufficient causal link between the role played by the former solicitor and the judgment which was obtained: see Roam Australia Pty Ltd v Telstra Corp Ltd t/as Telecom Australia [1997] FCA 980. Thus two or more firms may have equitable entitlements to the same fund. The weight of authority supports the proposition that the entitlement of the firm which conducts the case to its conclusion has priority: Re Wadsworth (1886) 34 Ch D 155 and see Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36; cf Atkinson v Pengelly [1995] 3 NZLR 104 at 109 where Tipping J saw “little justice” in a rule which had the capacity to exclude the claims of earlier firms entirely. It is unnecessary for present purposes to express any view on the competing views as to priority. All that matters presently is that there is no basis for thinking that the person with title or control of the fund owes a fiduciary obligation to the former solicitor (or former solicitors).

20. [134]

    Turning to his fifth point, rather than supporting Mr Naaman, the analysis in Bofinger supports the appellants. There a first mortgagee exercised a power of sale, and held a surplus of funds after its own indebtedness was discharged from the proceeds. It was held that at that point the first mortgagee owed fiduciary obligations to account for the surplus: at [49]. But at that point the position was as described by Kay J in Charles v Jones (1887) 35 Ch D 544 at 549-550 (cited by the High Court at [35]):

21. [135]

    But in the present case Jaken held the trust property as trustee for the discretionary objects of the trust, and subject to its own right of indemnity. Unlike the paid-out first mortgagee described by Kay J, Jaken was the opposite of someone with no interest in the surplus. Jaken had the right to possession of the trust assets in its capacity as trustee, ongoing obligations as trustee, and Jaken’s own right to indemnity.

22. [136]

    The entitlement of the former trustee to have recourse to assets in the hands of third parties who are volunteers or who have notice of the breach of duty is sustained by the proprietary aspect of the entitlement. It is unnecessary to superimpose a fiduciary duty between current and former trustee, and it is quite wrong to reason that, because equity would grant relief on the application of a former trustee against a successor trustee, the latter owes a fiduciary obligation to the former.

23. [137]

    If there were a fiduciary duty owed relating to the former trustee’s entitlement to have recourse against trust assets, that is inconsistent with the outcome reached in Equity Trust (Jersey) Ltd (Respondent) v Halabi (in his capacity as Executor of the Estate of the Late Madam Intisar Nouri) [2022] UKPC 36. If the successor trustee owes a fiduciary obligation in relation to the trust assets in respect of which the former trustee may have recourse, then the pro-rata ranking of the interests of former and successor trustees upheld by the UK Supreme Court would be replaced by priority being given to the former trustee’s entitlement. True it is that no arguments along those lines were addressed to the Supreme Court, but that leads to the next factor telling against the existence of a fiduciary obligation, namely its novelty.

24. [138]

    Trading trusts are a relatively recent phenomenon, and one that is more prevalent in Australia and New Zealand than elsewhere. Even so, disputes between former and successor trustees are far from unusual. It is remarkable that, so far as counsel’s researches disclosed, the only decision in which a fiduciary obligation has been explicitly upheld is Rothmore Farms (No 2) which has been addressed above. This engages the considerations relied on by Spigelman CJ (in a different context) in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; [2003] NSWCA 10 at [23], [25]-[26]:

25. [139]

    There is also force in other submissions advanced by the appellants. It is difficult to reconcile a fiduciary obligation owed to a former trustee with the undoubted fiduciary obligations owed to beneficiaries of a trust. The reconciliation between the entitlement of the former trustee and a Saunders v Vautier direction by a presently entitled beneficiary turns on the fact that the former trustee’s entitlement to have recourse to trust assets to discharge liabilities properly incurred by it derives from the priority of its property right, not because there is a fiduciary obligation. It is also to be borne in mind that it is improbable that the former trustee will be continuing properly to incur liabilities as trustee. True it is that liabilities for some conduct as trustee may accrue into the future, after the trustee has ceased to hold office, but the purpose of the rights conferred upon the former trustee are to discharge its right of indemnity. Once paid out, there is no basis for any ongoing relationship. This is unlikely to give rise to a fiduciary duty.

26. [140]

    Turning to the modified submission raised in oral address, a fiduciary duty which derives from a successor trustee’s status but which only arises upon the successor trustee learning of the existence and size of a realistic claim by the former trustee is decidedly odd. In that circumstance, and only in that circumstance, is the successor trustee required to subject its own interests to those of the former trustee. Plainly this is a not an accepted fiduciary relationship (including trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners) as enumerated by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97; [1984] HCA 64 and subsequently endorsed on many occasions, including in John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [86]-[87]. The joint judgment there confirmed that the critical feature was “that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense.” From this power or discretion comes the duty to exercise it in the interests of the person to whom it is owed. But how can the successor trustee be regarded as exercising its powers for and on behalf of the former trustee? The successor trustee is subject to a duty to the beneficiaries, and may be required to act in accordance with their direction (such as in the case of a Saunders v Vautier direction), and is readily treated as exercising its powers for and on behalf of them. And to the extent that vulnerability is a characteristic of a person who is owed a fiduciary obligation, the former trustee is no less vulnerable than any other creditor with a security interest recognised in equity (such as a chargee, or a former solicitor whose former client has obtained a judgment): the former trustee can protect its security by caveat and if necessary injunction and can enforce it through judicial sale.

27. [141]

    I conclude that the successor trustee Jaken did not owe a fiduciary obligation to its predecessor JPG. JPG was entitled to be indemnified for liabilities properly incurred as trustee. While in office, it had legal title to trust assets, which it could use to indemnify itself. After removal from office JPG continued to be able to have recourse to trust assets to discharge liabilities properly incurred by it as trustee. While it could no longer do so by reason of its ownership in law, it could nonetheless apply to the Court for the appointment of a receiver. Jaken did not owe JPG a fiduciary obligation, either at the time it was appointed, or from the time it learnt of JPG’s claim to be indemnified out of trust assets, or at any other time. Jaken held the assets on trust, subject to JPG’s prior ranking entitlement to have recourse to them, which could be vindicated by the appointment of a receiver. In the facts of this case, Jaken was also personally liable to indemnify JPG. But none of those matters gave rise to a fiduciary obligation owed by Jaken to JPG. These grounds are made out.

Standing (grounds 1 and 2)

1. [142]

   By these grounds, the appellants contended that Mr Naaman was not entitled to sue Jaken as the successor trustee for equitable compensation for breach of fiduciary duty, nor was he entitled to sue the remaining appellants for knowing assistance in any such breach.

2. [143]

   These grounds may be resolved on the basis that Jaken did not owe JPG a fiduciary obligation.

3. [144]

   Further, it became common ground at the hearing that JPG was entitled (as, because of subrogation, was Mr Naaman) to relief in equity based on JPG’s entitlement as former trustee to have recourse to trust assets in relation to dispositions and threatened dispositions of trust assets to third parties. In part for that reason, and in part because attention focussed, appropriately, on whether the duty owed by Jaken was fiduciary in nature, this Court did not hear full argument on the point. In particular, no argument was received on whether, by analogy with the authorities mentioned in Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109; [2004] HCA 7 at [55]-[56], notably Ramage v Waclaw (1988) 12 NSWLR 84, there might be circumstances where a former trustee might join the successor trustee and sue on causes of action which were trust property, notwithstanding the conventional view, reflected in the authorities cited by Brereton J in Lemery, that the only entitlement by way of final relief is to appoint a receiver or seek an order for judicial sale. I am inclined to think that that, even if available, would only occur in a highly unusual case, and as a matter of practice much might turn on the status and attitude and involvement of other beneficiaries and creditors of the trust. But in keeping with the “standard common law judicial technique of deciding no more than what needs to be decided” (Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32 at [76]), which is equally applicable to the development of equitable principle, it is best to confine these reasons to allowing these grounds of appeal on the basis that was squarely argued, namely, that there was no fiduciary obligation owed by Jaken to JPG.

4. [145]

   By notice of contention, Mr Naaman relied on an assignment taken by him from the liquidator of JPG by deed dated 14 September 2020. This does not arise, because such difficulties as there are with standing are those of the former trustee, rather than his assignee Mr Naaman.

Disposal of real estate at Granville and in Victoria (grounds 7 and 9)

1. [146]

   In October 2012, Jaken transferred the Granville Land to Superior for a stated consideration of $500,000 and in March 2013, the Victorian Properties were transferred by Jaken to PSJK, once again for a stated consideration of $500,000.

2. [147]

   The primary judge addressed the transfer of the Granville Land at [401]-[433], finding that the market value of the Granville Land in October 2012 was $837,000, that Superior provided no consideration for the transfer, on the basis that he disregarded the acknowledgement of receipt on the Real Property Act transfer, the absence of any receipt of funds of $500,000 in any of three bank accounts maintained by the trustee of the Sly Fox Family Trust, the failure by the appellants to tender financial records or otherwise point to business records to establish the payment of the stated consideration, the absence of any commercial reason for the transfer, the failure by Mr Tony Sleiman (the registered director of Jaken) and Ms Samantha Sleiman (who controlled Superior) to give evidence and finally, at [425], a rejection of Mr Peter Sleiman’s denial that such funds as he had contributed were contributed by way of loan. The conclusions followed from the absence of consideration. His Honour found that Superior knowingly received the Granville Land in breach of Jaken’s fiduciary obligations to JPG, as well as knowingly assisted in the transfer of land, which was held on constructive trust by Superior for JPG, subject to NAB’s interest as registered mortgagee. His Honour also found that s 37A had been breached and the transfer was voidable. Similar findings were made in relation to the transfer of the Victorian Properties to PSJK; I shall come to the details presently.

3. [148]

   Grounds 7 and 9 of the appeal maintained that most aspects of that reasoning were incorrect. In large measure, the written submissions reduced to the absence of any fiduciary obligations, which is addressed above. One additional point was made in writing, and two further points orally.

4. [149]

   It was said in the appellants’ written submissions in chief that “the Primary Judge did not … make any order under s 37A for the reconveyance of the Granville Land, be it to JPG or Jaken, or an order for the taking of an account”. It was said that before an order could be made under s 37A it would be necessary to consider all the circumstances of the case, which would include the acquisitions of the Kings Cross Property and Business in 2005 and not sold until 2021.

5. [150]

   Insofar as the appellants say that all the circumstances, including those of third parties, should be considered before any order under s 37A is made, the simple answer is that this appeal is interlocutory, no such order has been made and his Honour contemplated a further hearing for the making of orders. However, his Honour found at [429] that:

6. [151]

   Further, in [508] his Honour answered questions 5(a) and 28(a) “Was the transfer of the [Granville Land and Victorian Properties] (a) [v]oidable pursuant to s 37A of the Conveyancing Act?” affirmatively.

7. [152]

   The setting aside of his Honour’s findings of breach of fiduciary duty do not impugn the conclusions that s 37A was breached. This in substance was pointed out in writing by Mr Naaman. The appellants did not contend to the contrary in their written submissions in reply, and this point was not developed orally.

8. [153]

   In oral submissions, the appellants developed two aspects of a challenge to the rejection of a different aspect of the claims in relation to the Granville Land and Victorian Properties, namely, that Mr Sleiman having contributed to the purchase price, retained an interest in them under a resulting trust.

9. [154]

   First, the appellants referred to the favourable findings at [403] and [405] that $75,000 was withdrawn in February 2006 to pay the deposit of the purchase of the Granville Land, with a further $198,808.81 to assist in completing the purchase. In both cases the funds came from Mr Peter Sleiman. The appellants submitted that his Honour should have found that Mr Peter Sleiman was the beneficiary of a resulting trust in respect of some 36.5%. The fact that he was disbelieved was said not to detract from the force of the contemporaneous evidence of the financial transactions.

10. [155]

    However, as Mr Naaman pointed out in response, the difficulty confronting this submission was, as had been pointed out at trial, and recorded by the primary judge at [416(5)]: “any presumption of a resulting trust was rebutted by the fact that the existence of the Sly Fox Trust demonstrated that it was his intention that the property be held on trust for the beneficiaries of the Sly Fox Trust, and noting that the accounts of the Sly Fox Trust recorded beneficiary loans”. The Court accepted that submission: at [425], including by reference to the cross-examination directed to the money paid by Mr Sleiman towards the purchase price being reflected in beneficiary loan accounts. The appellants made no response to this in their written reply, and their oral submissions did not engage with it.

11. [156]

    No basis has been made out to interfere with the primary judge’s finding of fact that the presumption of a resulting trust from the contribution of part of the purchase price was rebutted by the intention that the properties be held, as to their entirety, as assets of the Sly Fox Family Trust.

12. [157]

    Secondly, the appellants challenged the findings that the Granville Land and the Victorian Properties were transferred for no consideration. They pointed to the stated consideration of $500,000 on the transfer, and the lodgement of that dealing by NAB together with a partial discharge of its existing mortgage, in support of the submission that it was “improbable in the extreme that the NAB, as the lodging party, would be party to a discharge and other lodgements based on a false receipt”. That submission repeats what was advanced at first instance, and fails to grapple with the fact that his Honour did have regard to the acknowledgement, but found having regard to the balance of evidence, that no such money was provided. His Honour did so at [417]-[424] in the case of the Granville Land, and [488]-[492] in the case of the Victorian Properties. The submission that this Court should set aside that factual finding was scarcely developed in oral submissions. There is no basis to do so.

13. [158]

    The transfer of the Victorian Properties was addressed at [471]-[494]. His Honour found that the market value of the Victorian Properties, as at August 2012, was $1,035,000. The parties’ submissions broadly followed those made in relation to the Granville Land, save that the appellants also relied on a contemporaneous email of 24 August 2005 from St George Bank to Mr Peter Sleiman referring to the settlement of one of the properties and stating “we have withdrawn $108,297.72 from your account … to complete the settlement of [the Victorian properties]. Settlement is scheduled for 3.00pm today.” However, his Honour found that the presumption of a resulting trust was rebutted by the fact that the properties were purchased by JPG to hold on trust on the terms of the Sly Fox Family Trust, thereby rebutting any suggestion that Mr Peter Sleiman had a separate beneficial interest. The primary judge reproduced passages from Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd; Carelli v FS Architects Pty Ltd [2008] NSWCA 39 at [78] and [84], and Leung v Fordyce [2019] NSWSC 18, observing that whether consideration was actually paid was peculiarly within the knowledge of vendor and purchaser and required relatively slight evidence to be adduced from Mr Naaman in order to infer that no consideration was in fact paid. His Honour relied upon the facts that the stated consideration was a “gross undervalue” to the market value, being less than the price it had been acquired for some seven years earlier, it was a related party transaction and Mr Sleiman’s overall pattern of conduct in depleting the assets of the Sly Fox Family Trust in the face of Mr Naaman’s claim. Further, neither Mr Tony Sleiman or Ms Samantha Sleiman was called to give evidence.

14. [159]

    Once again, most of the steps in the reasoning were formally challenged on appeal but were not the subject of any extensive oral submissions. The written submissions occupy parts of pages 19 and 20 of the appellants’ submissions. The appellants rely on the email from St George Bank, Mr Peter Sleiman and the acknowledgement of receipt. Once again, those submissions do not grapple with the evaluation of all of the evidence bearing on the point undertaken by the primary judge.

15. [160]

    Insofar as grounds 7 and 9 challenge the findings in relation to the Granville Land and the Victorian Properties other than in respect of the breach of fiduciary duty, they are not made out.

The Kings Cross Property and Business (ground 6)

1. [161]

   Ground 6 was that the primary judge “erred in determining that [any of the appellants were] liable for equitable compensation for breach of fiduciary duty without first determining Mr Naaman’s claim that the right of indemnity of JPG over the Kings Cross Property and Business to which he is subrogated, and whether any equitable lien to which he is entitled, takes priority over any claim by the National Australia Bank to the proceeds of sale of that property in April 2021 for $11,110,000 less GST of $1,011,612”.

2. [162]

   This ground was described in the respondent’s written submissions as “curious” in light of the second hearing contemplated by the primary judge. There was no response in the appellants’ written submissions in reply, and the point was scarcely touched upon in oral address.

3. [163]

   On the view I take, this ground does not arise, there being no breach of fiduciary duty.

The “$3.6 Million Drawdown” (ground 8)

1. [164]

   This ground is much more complex than the other transactions which were found to have been entered into in order to defraud Jaken’s creditors. The principal reason is that insufficient attention was directed to what the “$3.6 Million Drawdown” actually was, and the consequences of its being declared void, or received in breach of fiduciary duty, or holding “it” on trust.

2. [165]

   It is convenient to start with the answers to the questions and the orders made encapsulating those answers. The primary judge answered questions 10-20 as follows:

3. [166]

   On the face of it, the “Draw Down” is defined in question 12, and is conduct which was found to be in breach of the Court’s order and a fiduciary duty and a transaction which is voidable pursuant to s 37A. But the “Draw Down” is defined quite imprecisely, as “drawing down a further $3.6m and/or paying that sum to Powerhouse”. Neither limb of that description accurately records what the contemporaneous banking documents disclose occurred. Moreover, the imprecision is quite striking when read with the answer to the question, which recorded conclusions that the “Draw Down” was in breach of the orders made by Rein J and void for illegality. It should be said immediately that any charge of contempt for breach of those orders would have required far greater particularity, and that a statement that something is “void”, thereby altering the rights of persons, both personal and proprietary, likewise warrants precision: see the decisions collected in Brown Brothers Waste Contractors Pty Ltd v Pittwater Council (2015) 90 NSWLR 717; [2015] NSWCA 215 at [165]-[166] and Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50 at [29].

4. [167]

   On 1 July 2022, the primary judge made the following orders relating to the Drawdown and reflecting the answers to most of the questions:

5. [168]

   Those orders define the “Draw Down” differently (insofar as they make it clear that it is both the draw down and the payment to Powerhouse, in contrast to the “and/or” formulation in question 12), perhaps reflecting the difficulties observed by the primary judge of the formulation of the question.

6. [169]

   In order to address this aspect of the appeal, it is necessary to return to the transactional documents, and the financial records of the bank, so as to give precision to the “$3.6 Million Drawdown”.

7. [170]

   In late 2011, each of Jaken and Powerhouse entered into debt facilities with the National Australia Bank. The facility limits were $8.75m in the case of Jaken and $13.25m in the case of Powerhouse. Both companies were borrowers in their capacity as trustees. The facilities were described in the letters of offer from the bank dated 17 and 21 October 2011. Jaken in its capacity as trustee of the Sly Fox Family Trust gave an unlimited fixed and floating charge to secure the indebtedness of Powerhouse, and Powerhouse as trustee gave an unlimited fixed and floating charge to secure the indebtedness of Jaken. Each of Jaken and Powerhouse also guaranteed the repayment of the other’s indebtedness. Both facilities were drawn down in full in around late October 2011, and appear to have been used in part to repay existing debt owed to St George Bank. There was a deal of additional security provided by people and companies associated with Mr Peter Sleiman, including guarantees by Messrs Tony and Peter Sleiman, mortgages over three parcels of real property including the Granville Land, and fixed and floating charges given by both O’Malley’s Hotel companies.

8. [171]

   Both facilities were expressed to expire on 31 December 2014.

9. [172]

   In August and September 2014, both facilities were renegotiated, as a result of which Jaken’s limit increased to $12m, and Powerhouse’s limit decreased to $7m. It was said without objection in oral submissions in this Court, and so far as I can see it is the case, that no further securities were granted by either company, or by persons or entities associated with Mr Peter Sleiman.

10. [173]

    On 28 August 2014, a new account was opened by the bank in the name of “Jaken Properties Australia Pty Limited ATF Slyfox Family Trust” and on 8 September 2014 a debit of $12,000,000 was recorded in that account.

11. [174]

    Jaken’s existing account with the bank was in debt at $8,400,000 as at late August 2014. That is to say, it had drawn down $8.4 m of the $8.75 m facility. On 8 September 2014, a credit of $8,400,000 was applied to that account and the account was closed.

12. [175]

    Thus it was said that, by looking at those two accounts alone, Jaken’s indebtedness to the bank increased, on 8 September 2014, by $3.6 million.

13. [176]

    In the period between May and September 2014, Powerhouse had an account with the bank which was in debt in the order of $10.5m - $10.7m, with $75,000 being paid off each month. This represented the extent to which it had drawn down and had not repaid its $13.25m facility. By 8 September 2014, the indebtedness was $10,525,000. A credit in that amount was recorded on that date, and the account was closed. The $10,525,000 used to close that account was debited from another account maintained by Powerhouse. Into that latter account on 9 September 2014 was deposited $12,000,000. That entry was described as “Debt Reallocation”.

14. [177]

    An undated NAB document described as “Letter of Instruction – Loan Drawdown” authorised the full $12m of Jaken’s new facility to be drawn down. It is signed illegibly, and the direction as to where the drawdown would be paid was left blank.

15. [178]

    The primary judge addressed these transactions and the parties’ submissions in relation to them at [434]-[459]. It will be recalled that on 18 June 2014, when Pembroke J’s judgment was set aside by consent, Jaken had submitted, also by consent, to an order that it “be restrained from disposing of, dealing with other than in the usual course of business, or further encumbering or diminishing the value of the property [known] as ‘the O’Malley’s Hotel’ … [at] William Street Kings Cross (the Kings Cross Property) until further order of this court”.

16. [179]

    The primary judge recorded at [158]:

17. [180]

    At [443] the primary judge summarised the refinancing as follows:

18. [181]

    The substance of that paragraph is not controversial, although in fact the outstanding indebtedness of Jaken at the time was $8.4 million in its $8.75 million facility, and in fact Powerhouse’s facility was $13.25 million, of which at the time it had drawn down $10,525,000 (not $10,600,000).

19. [182]

    The primary judge described the transactions on 8 September 2014 as follows:

20. [183]

    The primary judge commenced his analysis, not inaptly, with the observation at [460] that while the “$3.6 Million Drawdown” was “a convenient label, it is apt to mislead”. His Honour recorded that he understood Mr Naaman’s complaint to have two aspects: the first was that, in effect, Jaken drew down and paid $3.6 million to Powerhouse for no good reason; the second was that Jaken had reduced the amount of equity available to Jaken’s unsecured creditors through Jaken’s access to the assets of the Sly Fox Family Trust by $3.6 million. Both those statements are statements of the economic effect of the transactions by reference to Jaken’s primary indebtedness to the bank.

21. [184]

    The primary judge made four findings, as follows:

    1. (1)

       Contrary to Jaken’s submissions, there was a fresh drawdown of funds by Jaken from its new facility. That was a drawdown of $12 million, which was then paid to Powerhouse.

    2. (2)

       There was no commercial purpose or benefit to Jaken (and none was suggested) by paying over $12 million to Powerhouse or effectively increasing Jaken’s liability as principal or primary debtor to NAB by $3.6 million.

    3. (3)

       Powerhouse gave no consideration or benefit to Jaken in return for Jaken providing funds to Powerhouse to reduce Powerhouse’s overall indebtedness to NAB by $3.6 million.

    4. (4)

       There was no increase in the amount guaranteed by various entities (including Powerhouse) to secure Jaken’s additional liability to NAB as principal or primary debtor of $3.6 million.

22. [185]

    His Honour regarded the effect of the transactions as being that Jaken had become subject to an additional debt. His Honour said at [463]:

23. [186]

    His Honour found that “insofar as the result of the drawdown and the related movement of funds set out in [446] above was to increase Jaken’s principal liability to NAB by $3.6 million, this was a ‘further encumbering or diminishing [of] the value of the property’ other than in the usual course of business”. His Honour added that:

24. [187]

    His Honour rejected Jaken’s submission that there was no alienation of property for the purposes of s 37A, finding as follows at [465]:

25. [188]

    His Honour was:

26. [189]

    Further, because Powerhouse knew that when it received the $3.6 million as part of the $12 million it was doing so in breach of Jaken’s trust or fiduciary duties owed to JPG, such that if no tracing remedy were available, it was liable to JPG in equitable compensation for any shortfall, as were Messrs Peter and Tony Sleiman.

27. [190]

    The primary judge rejected the submission that there had been tortious interference with the contract which underpinned the orders made by Rein J, on the basis that no damage had been established: at [470]. His Honour said at [466] that Jaken’s submission that the $3.6 million was held on trust as property of the Sly Fox Family Trust was “correct as a theoretical proposition”, but that only if “part of that fund is still held by Powerhouse it can only be a matter for account and inquiry”.

28. [191]

    In oral submissions, the appellants emphasised the interconnectedness of the borrowings by Jaken and Powerhouse:

29. [192]

    There is a measure of artificiality in dealing with any of this ground. It may very well be that nothing whatsoever turns upon it. If the bank takes priority over Mr Naaman exercising his right of subrogation, and the bank is not fully repaid, then nothing would turn upon it. Further, as indeed some of the answers given and orders made by the primary judge make clear, it is difficult to make orders in the abstract, without the presence of all parties, which will need to be worked out when all claims are heard and determined together.

30. [193]

    However, it is a most serious thing to conclude that there has been a breach of court order, and I should explain why I accept the appellants’ submission that that did not occur.

31. [194]

    I see no error in the finding that what occurred was not in the usual course of business. The primary judge was well placed to conclude that the transactions coincided with the making of the orders by Rein J, and equally well placed, in light of an extensive history of Mr Peter Sleiman undertaking transactions which coincided precisely with events relevant to Mr Naaman’s pursuit of him (not all of which have been summarised in this judgment) to conclude that there was no commercial benefit and the increase of primary debt on the part of Jaken was done in an attempt to prejudice Mr Naaman’s rights of recovery. That is to say, it is a conclusion which is likely to have been informed by the impressions Mr Sleiman gave at trial, which the appellants have not come close to making out a case for appellate interference: Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55].

32. [195]

    However, the primary judge also found that there was a “further encumbering or diminishing the value of the [King’s Cross Property]”. It is as well to reproduce the order which was found to have been breached:

33. [196]

    The starting point is to construe the order. The restraint has three (or arguably four) limbs. First, Jaken must not dispose of the property. Secondly, Jaken must also not deal with the property other than in the usual course of business. Thirdly, Jaken must not further encumber or diminish the value of the property.

34. [197]

    On no view of the grammar of the order, or its evident sense, is the “usual course of business” requirement applicable to any limb other than the restraint against dealings. The primary judge found that the “further encumbering or diminishing the value” limb of that order was breached. It was not to the point to find that what occurred was other than in the usual course of business.

35. [198]

    Moreover, I fail to see how there was a further encumbering or diminishing of the value of the Kings Cross Property. The company which owned that land had guaranteed the obligations of each of Jaken and Powerhouse to repay the earlier $8.75m and $13.25m facilities, and had granted fixed and floating charges over all of their present and future property. It is true that the primary judge found that the guarantee given by Powerhouse in 2011 of Jaken’s obligation to repay was limited to $8.75m, which remained unaltered after the refinancing: at [112]. No further guarantee or change was granted when the refinancing occurred.

36. [199]

    True it is that the primary indebtedness of Jaken increased, and that of Powerhouse decreased. That made no difference to any encumbrance upon or value of the Kings Cross Property, which had been charged to secure the repayment of both debts.

37. [200]

    The only point made by Mr Naaman contrary to the above in writing was thus:

38. [201]

    I disagree. What the primary judge in fact said at [463] drew upon the language of Hodgson J in Standard Chartered Bank v Antico (Nos 1 and 2) (1995) 38 NSWLR 290 at 314, a decision directed to a company “incurring a debt” for the purposes of the insolvent trading provisions of the corporations legislation:

39. [202]

    The passage relied upon by Mr Naaman was one which dealt overall with what occurred, before descending into the (necessarily different) analyses as to whether there had been a contempt of orders, an alienation of property to defraud creditors, or a breach of fiduciary duty.

40. [203]

    It is true that the legal reality and the commercial reality was that Jaken increased its primary indebtedness. But the question for the purposes of its being in compliance with, or in contempt of, the orders made by Rein J did not turn on its indebtedness to its bank. It turned on whether there had been a disposition of, or a dealing otherwise in the ordinary course of business with, or an encumbrance or diminishing the value of, the Kings Cross Property. Once again there may be seen to be a conflation of the personal obligation of Jaken to its bank and the proprietary rights in the Kings Cross Property.

41. [204]

    The Kings Cross Property remained charged to secure the repayment of both Jaken’s and Powerhouse’s facilities. The “commercial reality” was that the Kings Cross Property was security for facilities provided by the bank to Jaken and Powerhouse totalling $19m, not $22m.

42. [205]

    Grounds 8(a)(ii) and (iv) are made out. In circumstances where no breach of any court order has been established, it is not necessary to address the consequences attributed by the primary judge to the breach of the order.

43. [206]

    Section 37A(1) provides that:

44. [207]

    A person seeking to invoke the section needs to identify an “alienation of property”. The effect of the section is to make the alienation voidable at the instance of a person who is prejudiced by the alienation.

45. [208]

    The joint judgment in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [65]-[68] said:

46. [209]

    Section 37A is to be construed liberally: see Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [20] and, by way of recent example, Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas [2023] FCAFC 93 at [133]-[135].

47. [210]

    Nonetheless, it is necessary to identify the alienation. It is not enough to say that the new $12m facility which Jaken obtained from the bank was voidable. That would simply mean that Jaken was not authorised to draw down any of the $12m, and would remain in breach of the unextended $8.75m facility it had obtained in 2011. Moreover, the bank was not a party to the litigation, and had an entitlement to be heard against a claim by Mr Naaman or JPG that a contract between the bank and Jaken was voidable.

48. [211]

    It was entirely understandable therefore that Mr Naaman focussed upon the economic effect of the refinancing, which was to increase the primary indebtedness of Jaken by $3.6 million, and to reduce the primary indebtedness of Powerhouse. Even so, it remains necessary to identify the alienation.

49. [212]

    At one stage, it was said that what was alienated was the “value”:

50. [213]

    However, thereafter counsel embraced a suggestion from the Court that the section could be applied by looking at the individual transactions which occurred at the time of the refinance, relevantly, the crediting of a new account in Jaken’s name with $12,000,000 representing the full drawdown of the new facility on 8 September 2014, and thereafter the crediting of Powerhouse with $12,000,000 (“Debt Reallocation”) on 9 September 2014, coupled with credits to Jaken on the same day of $1,422,954.86 and $7,000,000 (“Debt Reallocation”). The net effect of those three transactions, all on 9 September 2014, was an approximate increase of Jaken’s indebtedness to the bank by $3.6 million and a decrease of Powerhouse’s indebtedness to the bank in the same amount.

51. [214]

    There is a difficulty with the seeming incompleteness of the documentation, and in particular the signed direction to pay which has been left blank. Further, the “debt reallocation” entries in the bank statements of Jaken and Powerhouse may well reflect internal entries made by the bank. However, I see no reason to doubt the finding that “the increase in Jaken’s liability to NAB which was effected by drawing down and paying away the $12 million to Powerhouse was intended to defraud creditors (most obviously, Mr Naaman) by increasing Jaken’s liability as principal to NAB as a secured creditor”. The increase in Jaken’s indebtedness to NAB was mirrored by a corresponding reduction in Powerhouse’s indebtedness to NAB. Had Jaken in fact received the additional $3.6m in loan funds, and given them to Powerhouse, which were then used by Powerhouse to repay NAB, then Jaken’s gift would be an alienation of property.

52. [215]

    In circumstances where the documents are incomplete, but the purpose clear, I accept that it would be open to conclude that the three entries in the accounts of Jaken and Powerhouse all on 9 September 2014 identified above, whereby Jaken’s indebtedness increased by $3.6 million, and Powerhouse’s indebtedness decreased by the same amount, reflected an alienation of Jaken’s money. The alienation may be seen from the fact that Jaken became indebted to its bank from $8.4 million to $12 million, and Powerhouse’s indebtedness reduced. That said, the bank has an entitlement to be heard in relation to that conclusion. If there is an alienation of property, that involves looking at the consequences of a series of inter-related dealings involving the bank and its customers, Jaken and Powerhouse. Insofar as Mr Naaman seeks orders declaring transactions involving the bank to be void, the bank is a necessary party.

53. [216]

    I do not accept the appellants’ submission that just because all there was was debt meant that there could not be an alienation of property. The starting point for s 37A of the Conveyancing Act is to identify an “alienation of property”. Jaken did not, strictly speaking, have $3.6 million in “cash” (which would be possession of a large volume of banknotes). Nor did it have $3.6 million of “money” “in” the bank (which would be a bank account in credit reflecting an indebtedness of the bank to its customer Jaken in the amount of $3.6 million). Jaken was at all times indebted to the bank. But the payment away of borrowed money is capable of being an alienation of property.

54. [217]

    There is a more general point. Order 10 made on 1 July 2022 is that “The Draw Down is void” while order 28 made it clear that “none of the relief set out above is intended to affect the rights of the National Australia Bank”. The effect of those orders is, with respect, quite unclear. One difficulty is identifying precisely which transactions between banker and customer are void, because of the definition of “Draw Down”. A separate difficulty is identifying the effect of the voidness which, whatever be its effect, plainly enough does not affect the rights of the National Australia Bank. The preferable course is for no order to be made under s 37A in relation to transactions involving Jaken’s bank account in proceedings without the bank first being heard. As previously noted, it may well be that the matters addressed above are entirely academic.

55. [218]

    Finally, insofar as ground 8 challenged the findings and answers to questions that the “$3.6 Million Drawdown” was in breach of fiduciary duty, it is made out for the reasons given above on the main grounds of appeal. There was no such duty.

Conclusion and orders

1. [219]

   The result is that the appellants have succeeded on the main point argued on the appeal, namely, that there was no fiduciary obligation owed by Jaken to the former trustee JPG. That has consequences for many of the claims of ancillary liability for knowing receipt or knowing assistance in accordance with the principles in Barnes v Addy. The appellants have also succeeded in setting aside the finding that the “$3.6 Million Drawdown” involved a breach of the Court’s orders.

2. [220]

   However, JPG and through it Mr Naaman is a creditor of the trust who is entitled to have recourse to trust assets including land alienated contrary to s 37A of the Conveyancing Act and its Victorian equivalent. The appellants have failed to set aside the findings of the primary judge in those respects. In respect of the claim based on the “$3.6 Million Drawdown”, that should not be determined finally in the absence of the bank.

3. [221]

   Speaking generally, the consequence is that all of the questions which turn on a breach of trust or a breach of fiduciary duty should be answered negatively. So too should the questions which involve a breach of the orders made by Rein J. The answers to the questions which turn on an alienation to defraud creditors should not be disturbed, although that is without prejudice to the bank’s entitlement to be heard on those issues.

4. [222]

   Questions 1-3 pose quite abstract questions which need not be answered. For the reasons given above, it has not been necessary to address the effect of the Deed of Assignment. I presently favour the view that the answers to questions 1-4 should be set aside, and in lieu thereof they should be answered collectively by reference to the ground of appeal: “Insofar as these questions are directed to Mr Naaman’s and JPG’s standing to sue for breaches of fiduciary duty owed by Jaken to JPG, they do not arise because no such duty was owed. Otherwise, it is unnecessary to answer these questions.”

5. [223]

   It is possible that there is some subtlety in the questions which I have overlooked, or that there may be matters of which this Court is presently unaware which bear upon some of the answers. The orders I propose will permit the parties to be heard further as to the answers to the questions.

6. [224]

   I understood that it was common ground that these proceedings should be returned to the Equity Division where, together with the other proceedings pending in the Supreme Court, there can be a determination of the relief, if any, to which Mr Naaman and JPG are entitled, in light of the other claims upon the trust property and what was formerly the trust property. In particular, the bank will be entitled to be heard, including on such evidence as it is minded to adduce, on (a) the finding that the “$3.6 Million Drawdown” was an alienation of property to defraud creditors, and (b) whether any orders should be made consequent upon that finding. The parties will be entitled to make application for any further orders, or different orders from those made by this Court, by application within the period specified by UCPR r 36.16.

7. [225]

   As previously noted, on 1 July 2022, the primary judge made 21 further substantive orders informed by the answers to those questions, as well as a suite of interlocutory orders including order 28 “The Court notes that none of the relief set out above is intended to affect the rights of the National Australia Bank”. Order 1(a) is not in dispute, nor is order 20 that Jaken’s amended summons be dismissed, but otherwise the notice of appeal seeks to set aside orders 1(b) – 19 and 21 (and some of the other orders). Insofar as those orders duplicate the answers to the questions, it is far from clear that they are necessary, but the orders I propose will permit the parties to be heard as to that, as well as on any further orders this Court should make. I incline to the view that the preferable way of recording the outcome of a hearing which appears in substance to have been directed to answering questions reserved for separate determination is for orders recording the questions and their answers to be made. My present view, subject to the parties’ submissions, is that any need to vary the interlocutory orders is best addressed in the Equity Division, and it is open to the parties to submit that other orders should also preferably be made in the Equity Division (in saying that I have in mind in particular the desirability of the bank being heard in relation to and being bound by the orders, which cannot happen if they are made in this Court in proceedings to which the bank is not a party).

8. [226]

   Costs are slightly complex. The appellants have succeeded on the main issue argued. However, their success has been mixed, and to some considerable extent it may be pyrrhic (this depends on matters of which this Court may not be fully apprised). The orders I propose will permit the parties to apply for an order as to the costs in this Court. However, it may well be that the appropriate order as to costs is that there be no order as to costs, reflecting the partial success of the appeal. Whether the costs at first instance should be redetermined by this Court, or left to the Equity Division, is a matter on which the parties will also be heard.

9. [227]

   The formal orders I propose are as follows:

10. [228]

    KIRK JA: I agree with judgment of Leeming JA. I add the following observations with respect to the issue of whether or not the first appellant owed the respondent a fiduciary duty.

11. [229]

    As explained by Bell CJ at [1], the reason that issue arises is because the respondent sought to rely on the principles in Barnes v Addy in order to obtain relief against the appellants. The motivation to seek such relief is understandable in the circumstances of this case where, according to unchallenged findings, “Jaken engaged in a dishonest and fraudulent design to strip itself of assets that might otherwise be available to satisfy” the judgment debt in favour of the respondent, doing so at the direction of Tony Sleiman and Peter Sleiman: Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517, [431], also [433]. However, the lack of substantive merit of the appellants in this case cannot distract from the imperative of maintaining coherent legal principle.

12. [230]

    This case illustrates that the interests of the previous trustee may be vulnerable to exercises of power by the current trustee. Vulnerability is an important factor pointing towards recognition of a fiduciary duty: see eg Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97 per Mason J, 142 per Dawson J; [1984] HCA 64; Breen v Williams (1996) 186 CLR 71 at 107 per Gaudron and McHugh JJ; [1996] HCA 57. Similarly, at common law, vulnerability is an important factor militating in favour of the existence of a duty of care: eg Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 at [23]. In neither case is it conclusive. There are many circumstances where one person in a relationship is vulnerable to actions of the other where there will be no fiduciary duty (or duty of care). For example, the interests of a mortgagor will be vulnerable to when and how a mortgagee exercises a power of sale. Professor Finn said the following of an American decision finding a fiduciary duty in that context:

13. [231]

    Similarly, the interests of a mortgagee may be vulnerable to the way in which a mortgagor makes use of the subject property; a person who has contracted to purchase property may be vulnerable to the actions of the vendor; a tenant operating a business may be vulnerable to actions taken by the landlord with respect to the business. In such instances, in general, no fiduciary duty arises. The interests of the vulnerable person are taken by the law to be sufficiently protected by their other available legal rights and claims.

14. [232]

    Here, vulnerability does not suffice when account is taken of other relevant circumstances. The following factors are of particular significance in my view. First, picking up on the point just made, if a fiduciary duty was recognised in this type of case then it is difficult to see why it would not be recognised in other similar circumstances where one person holds property in which another has some interest, such as a mortgagee, some other type of security-holder, or a person with an equitable lien, charge or claim: note, further, Fiduciary Obligations, [674]-[675], [679]. That would be a significant expansion of the role of fiduciary duties in Australian law, cutting across developed legal principle. To treat the position of a previous trustee as special compared to these other situations is more anomalous than recognising that the beneficiaries of the trust – who rank behind any claim of the previous trustee on the right of indemnity – are owed fiduciary duties whilst the previous trustee is not.

15. [233]

    The vulnerability of a person in the position of the respondent should also not be overstated. The previous trustee has proprietary rights. This case also illustrates the potential application of provisions such as s 37A of the Conveyancing Act 1919 (NSW). Further, there was no dispute in this case that the respondent’s interest in the realty held by the trust was capable of being protected by a caveat on title. That is more than can be said of some other valuable equitable interests: note Thynne v Sheringham [2023] NSWCA 181.

16. [234]

    Secondly, fiduciary duties arise in a relationship between two or more persons. Here, as explained by Leeming JA at [108]-[111], the respondent’s argument evolved to asserting that the fiduciary duty here would come into existence if and when the trustee had notice of a “realistic” claim by the previous trustee to reimbursement or exoneration. That reflected the fact that a previous trustee itself may only become aware of a possible need to claim on its right of indemnity some years after it has ceased to be trustee, following a claim being made upon it in connection with its operation of the trust. Leeming JA’s description of such a duty as “decidedly odd” is apt (at [140]). It would be unlike the ongoing duty which exists in established categories of fiduciary relationship, which spring into being by nature of the relationship rather than being turned on by notification of some claim which could be characterised as realistic. Fiduciary duties are onerous. It is unsatisfactory that the existence of such duties would depend on such an uncertain and subjective criterion.

17. [235]

    True, a mortgagee who has sold the mortgaged property and retains a surplus owes a fiduciary duty to those entitled to that surplus: Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44 at [35], [49]; Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 at [139]-[144]. That person might be someone with whom it has no pre-existing relationship, such as a second mortgagee. And it is a duty which only arises on the occurrence of a particular event. Even so, the event which causes the duty to come into existence is a clear one: the property is sold and there is a surplus. That distinguishes it from the type of duty asserted here.

18. [236]

    Thirdly, to find that a trustee owes a previous trustee a fiduciary duty with respect to management of the trust property sits uncomfortably with the nature of the relationship between a trustee and beneficiaries of the trust. The trustee, of course, owes a fiduciary duty to the beneficiaries. That duty requires “absolute and disinterested loyalty”: see Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43 at [67], and authority there cited. The loyalty owed by the trustee to beneficiaries does not subjugate all of the trustee’s own interests. The trustee is entitled to exercise its right of reimbursement or exoneration out of the trust assets, in priority to the beneficiaries: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [47]-[51]; Carter Holt Harvey Woodproducts Australia Pty Limited v Commonwealth (2019) 268 CLR 524; [2019] HCA 20 at [29]-[33], [80]-[84], [130]-[134]. But that right must be understood in the context of the relationship.

19. [237]

    As Finn explained, a key question in considering whether to recognise a fiduciary duty is to ask whether the purpose of the relationship is “to further [the parties’] several interests, the joint interest or the interests of one alone”: Fiduciary Obligations, [719], see also [714] and [720]-[722]. The purpose of the relationship between trustee and beneficiaries is not to further the interests of the trustee; it is the other way around. Leaving aside particular contractual obligations, such duties as a current trustee has to the previous trustee arise by virtue of its position as trustee, a role in which its duty is to further the relevant interests of the beneficiaries. That is not a context favouring recognition of a duty of absolute and disinterested loyalty to the previous trustee to the extent of its possible claim for indemnity which takes priority over the interests of the beneficiaries. The previous trustee’s claim on the trust assets is, after all, of the same kind as the equivalent right of the current trustee.