Today, in a decision of great significance for the law of trusts, the High Court dismissed an appeal from a decision of the New South Wales Court of Appeal. John Kelly SC, Simon Shepherd and Adrian Maroya appeared for the successful respondents (who succeeded as appellants in the Court of Appeal). The High Court appeal concerned whether a successor trustee owes a fiduciary obligation to a former trustee in respect of the former trustee’s entitlement to be indemnified out of trust assets (or the commensurate beneficial interest in the trust assets that the former trustee retains) following replacement of the former trustee by the successor trustee.

The High Court (by majority) held that a successor trustee does not owe a fiduciary obligation to a former trustee in respect of the entitlement of the former trustee to indemnification out of the trust assets, or the commensurate beneficial interest that the former trustee has in the trust assets. The majority held that the explanation for that answer lies in the nature of a trustee’s entitlement to indemnification out of the trust assets being an entitlement to have the trust assets applied for the purpose of recouping expenditure or exonerating liability properly incurred by the trustee. Accordingly, the remedies of equitable compensation and account are not available to the former trustee against the third parties.

Read the full judgment here.