Jaken Properties Australia Pty Ltd v Naaman - [2023] NSWCA 214 - NSWCA 2023 case summary — Zoe

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Jaken Properties Australia Pty Ltd v Naaman

[2023] NSWCA 214

Court of Appeal (NSW)|2023-02-07|Before: Bell CJ, Leeming JA, Kirk JA

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Source facts

Court

Court of Appeal (NSW)

Decision date

2023-02-07

Before

Bell CJ, Leeming JA, Kirk JA

Source

Original judgment source is linked above.

Judgment (28 paragraphs)

[1]

Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524; [2019] HCA 20 Charles v Jones (1887) 35 Ch D 544 Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; [2005] HCA 53 C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd & Anor (1996) 37 IPR 315; [1996] FCA 1079 CSR Ltd v Eddy (2005) 226 CLR 1; [2005] HCA 64 Davis v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 10 Dodds v Tuke (1884) 25 ChD 617 Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36 Frame v Smith [1987] 2 SCR 99; (1987) 42 DLR (4th) 81 Grogan v Orr [2001] NSWCA 114 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; [2003] NSWCA 10 Hewett v Court (1983) 149 CLR 639; [1983] HCA 7 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64 Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 In re Hallett's Estate (1880) 13 Ch D 696 Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517 Jaken Properties Australia Pty Ltd v Naaman [2023] NSWSC 268 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 Johnson v Buttress (1936) 56 CLR 113; [1936] HCA 41 Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 Kirkham v Peel (1880) 43 LT 171 LAC Minerals v International Corona Resources [1989] 2 SCR 574; (1989) 61 DLR (4th) 14 Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 Leung v Fordyce [2019] NSWSC 18 Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32 McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 Meletsis v Yeo in his capacity as trustee of the bankrupt estate of Karas [2023] FCAFC 93 Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78 Naaman v Sleiman [2014] NSWSC 1869 Naaman v Sleiman [2015] NSWCA 259 Norberg v Wynrib [1992] 2 SCR 226; (1992) 92 DLR (4th) 449 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61 Ramage v Waclaw (1988) 12 NSWLR 84 Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866 Re Wadsworth (1886) 34 Ch D 155 Re Wakim: ex parte McNally (1999) 198 CLR 511; [1999] HCA 27 Reading v The King [1949] 2 KB 232 Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 Roam Australia Pty Ltd v Telstra Corp Ltd t/as Telecom Australia [1997] FCA 980 Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd; Carelli v FS Architects Pty Ltd [2008] NSWCA 39 Ron Kingham Real Estate Pty Ltd v Edgar [1999] 2 Qd R 439 Ronori Pty Ltd v ACN 101 071 998 Pty Ltd [2008] NSWSC 246 Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50 Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd [2005] SASC 117 Rothmore Farms Pty Ltd (in liq) v Belgravia Pty Ltd (No 2) [2002] SASC 390 Rothmore Farms Pty Ltd (in prov liq) v Belgravia Pty Ltd [1999] FCA 745 Standard Chartered Bank v Antico (Nos 1 and 2) (1995) 38 NSWLR 290 Thynne v Sheringham [2023] NSWCA 181 Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319; [1945] HCA 37 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 Yard v Yardoo Pty Ltd & Ors; Yard & Ors v Yard [2007] VSCA 35 Texts Cited: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (LexisNexis, 5th Edition, 2015) L Smith "Prescriptive Fiduciary Duties" (2018) 37(2) University of Queensland Law Journal 261 N Palmer, Palmer on Bailment (3rd ed, Thomson Reuters, 2009) PD Finn, "The Fiduciary Principle" in TG Youdan, Equity, Fiduciaries and Trusts (Carswell, 1989) PD Finn, Fiduciary Obligations (Federation Press, 2016) Sykes & Walker, The Law of Securities (5th ed, 1993, Lawbook Co) Category: Principal judgment Parties: Jaken Properties Australia Pty Ltd as trustee for the Sly Fox Family Trust (First Appellant) Peter Sleiman (Second Appellant) Tony Sleiman (Third Appellant) Superior Family Investments Pty Ltd (Fourth Appellant) O'Malley's Hotel Pty Ltd (Fifth Appellant) PSJK Holdings Pty Ltd (Sixth Appellant) Powerhouse Corporation Pty Ltd (Seventh Appellant) Anthony Naaman (Respondent) Representation: Counsel: J C Kelly SC with A Maroya (Appellants) P Afshar (Respondent)

[4]

HEADNOTE [This headnote is not to be read as part of the judgment] The first appellant, Jaken Properties Australia Pty Ltd (Jaken), is the trustee of the Sly Fox Family Trust. Jaken replaced the former trustee, Jaken Property Group Pty Ltd (JPG). The second to seventh appellants are persons and companies associated with Jaken. The respondent, Mr Anthony Naaman, is a judgment creditor of JPG in the amount of $3,446,755.55. There was no dispute that he was subrogated to the rights of JPG to be indemnified out of trust assets for liabilities incurred by it, including the judgment debt. It is likely that there will be insufficient trust assets to satisfy Mr Naaman's judgment debt. Mr Naaman claimed that Jaken had transferred trust assets to other parties in breach of a fiduciary duty owed by Jaken to JPG, in breach of certain asset preservation orders, and in order to defraud creditors. The primary judge answered numerous questions concerning the transfers of the assets, including whether they had been transferred in breach of fiduciary duty, whether other appellants had knowingly received or assisted in the transfers, whether the transfers had been contrary to a court order preventing any further encumbering or diminishing the value of the certain property, or for the purpose of defrauding creditors. Most were answered unfavourably to the appellants. The primary judge contemplated there being a further hearing to determine the parties' entitlement. The National Australia Bank, which was a secured lender to Jaken and had security over some of the assets held by other appellants, was not a party to these proceedings. After the primary judge reserved, the bank appointed a receiver to one of the trust properties. There were two main issues on appeal. First, does a successor trustee owe 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, such that third parties who received trust assets or who assisted in their transfer are liable pursuant to the principles in Barnes v Addy. Secondly, did the primary judge err in relation to factual findings made in respect of the trust assets, properties and business in Kings Cross, Granville and Victoria, as well as bank transactions described as the "$3.6 Million Drawdown". The Court granted leave to appeal and allowed the appeal in part. In respect of the first issue: Per Leeming and Kirk JJA, Bell CJ dissenting:

The successor trustee did not owe the former trustee a fiduciary obligation, either at the time it was appointed, or from the time it learnt of the former trustee's claim to be indemnified out of trust assets, or at any other time: per Leeming JA at [115]-[141]; per Kirk JA at [228]-[237]; Bell CJ contra at [3]-[33]. Consideration by Bell CJ of the nature of the former trustee's entitlement to trust assets, the nature of fiduciary obligations and the circumstances when they are imposed, the significance of vulnerability, the analogies with a bailee and a mortgagee with a surplus after exercise of a power of sale, the analogy of a bailor, and the relationship between the obligation owed to a former trustee and to current beneficiaries. Consideration by Leeming JA of remedies available to a former trustee, the nature of a former trustee's entitlement to trust property, the variety of relationships conferring property rights which do not give rise to fiduciary obligations, the significance of the absence of decisions upholding a fiduciary duty. Consideration by Kirk JA of the role of vulnerability, the difficulty in a duty which arises on receipt of a realistic claim, and the relationship between the posited duty owed to a former trustee and the duty owed to beneficiaries. Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 3) [2016] NSWSC 1452; Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524; [2019] HCA 20; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4; Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344; Masri v Consolidated Contractors International Company SAL [2009] QB 450; [2008] EWCA Civ 303; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61, considered. In respect of the second issue: Per curiam:
There was no error in the findings that the Granville Land and the Victorian Properties had been transferred in order to defraud creditors: at [146]-[160].
The "$3.6 Million Drawdown" did not contravene the asset preservation order, because there was no further encumbering or diminishing the value of the property over which security had already been given when Jaken increased its indebtedness and another company reduced its indebtedness: at [193]-[205].
No finding that the transactions comprising the "$3.6 Million Drawdown" was void by reason of s 37A of the Conveyancing Act should be made in proceedings to which the bank was not a party: at [217].

[5]

Judgment

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

a trustee has a right to be indemnified or exonerated out of trust assets for expenses and liabilities properly incurred in the course of the trusteeship: Carter Holt Harvey Woodproducts Australia Pty Limited v The Commonwealth of Australia (2019) 268 CLR 524; [2019] HCA 20 (Carter Holt) at [29];
that right comprises an equitable proprietary interest in the trust estate: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 370; [1979] HCA 61 (Octavo); Carter Holt at [32]. This interest has been described as "the trustee's beneficial interest in the trust estate": Octavo at 371;
it is an interest that survives the trustee's retirement (Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866 at [40] ff and the cases there cited) and insolvency, with trust creditors of an insolvent former trustee being able to enforce the power of exoneration by subrogation to the former trustee's rights: Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 335; [1945] HCA 37 (Vacuum Oil); Octavo at 367, 370;
the interest has been said to comprise or be in the nature of a 'charge or lien' which "arises endogenously as an incident of the office of trustee in respect of the trust assets": Carter Holt at [83], see also at [32];
the former trustee's interest is a "beneficial interest in" the trust's assets: Carter Holt at [80]-[84], [133]-[142]; see also Octavo at 371; Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation (2009) 239 CLR 346; [2009] HCA 32 (Bruton) at [43];
it is an interest that takes priority over the interests of beneficiaries of the trust including their right to call in the trust assets in accordance with the rule in Saunders v Vautier: see Vacuum Oil at 335; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 (Buckle) at [47]-[48], citing Dodds v Tuke (1884) 25 ChD 617 at 619; Carter Holt at [83]; see also Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 at 587;
equity will grant relief to protect a former trustee to ensure that its successor does not take steps which will destroy, diminish or jeopardise the former trustee's right of security (to be fully exonerated), which subsists in the trust assets after their transfer to the new trustee: Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 (Lemery) at [50].

In Buckle, it was said by a unanimous High Court, citing Octavo at 370, that: "[t]o the extent that the assets held by the trustee are subject to their application to reimburse or exonerate the trustee, they are not "trust assets" or "trust property" in the sense that they are held solely upon trusts imposing fiduciary duties which bind the trustee in favour of the beneficiaries": at [48] (emphasis added). The context of this statement and what followed it emphasised the superiority of the right of the former trustee in relation to its exoneration or reimbursement over the rights of ordinary beneficiaries. To my understanding, their Honours did not mean that the successor trustee did not continue to hold the corpus of the trust assets on trust for those who had equitable interests in them, but rather were at pains to point out that there was an order of priority as between a former trustee and the beneficiaries.
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.
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.
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:

the categories of fiduciary duty are not closed: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96; [1984] HCA 64 (Hospital Products);
various relationships have been recognised as giving rise to fiduciary duties including trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company and partners: Hospital Products at 96; Breen at 92, 107. As Professor Finn observed, these are sometimes described as relationships which are "fiduciary per se": PD Finn, "The Fiduciary Principle" in TG Youdan, Equity, Fiduciaries and Trusts (Carswell, 1989) at 32 (Finn);
other relationships may not give rise to fiduciary obligations in any general sense but aspects of a particular relationship may do so. Thus, a person may stand in a fiduciary relationship to another for one purpose but not for others: Hospital Products at 98; Breen at 108. See also Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44 (Bofinger) where a mortgagee who sold the mortgaged property was held to become subject to a fiduciary obligation to those entitled to surplus proceeds after its debt was paid;
as such, it has been said that the finding that a legal relationship in itself is not fiduciary in whole or in part by no means concludes the fiduciary question: Finn at 40.
attention should be paid to the subject matter over which it is contended that fiduciary obligations extend: Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 409; [1929] HCA 24.
various circumstances may point to the existence of a fiduciary duty or obligation without being determinative of the issue. Gaudron and McHugh JJ identified some such circumstances in Breen at 107 as including: ○ the existence of a relation of confidence: Hospital Products at 69; ○ inequality of bargaining power: Hospital Products at 69-70; ○ an undertaking by one party to perform a task or fulfil a duty in the interests of another party: Hospital Products at 96-97; Reading v The King [1949] 2 KB 232 at 236; ○ the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another: Frame v Smith [1987] 2 SCR 99; (1987) 42 DLR (4th) 81 cited in LAC Minerals v International Corona Resources [1989] 2 SCR 574; (1989) 61 DLR (4th) 14 at 62-63; and ○ a dependency or vulnerability on the part of one party that causes that party to rely on another: Johnson v Buttress (1936) 56 CLR 113 at 134-135; [1936] HCA 41 (Johnson).

In Breen at 82, Brennan CJ made the following valuable observations in relation to fiduciary duty (footnotes omitted): "Fiduciary duties arise from either of two sources, which may be distinguished one from the other but which frequently overlap. One source is agency; the other is a relationship of ascendancy or influence by one party over another, or dependence or trust on the part of that other. Whichever be the source of the duty, it is necessary to identify "the subject matter over which the fiduciary obligations extend". It is erroneous to regard the duty owed by a fiduciary to his beneficiary as attaching to every aspect of the fiduciary's conduct, however irrelevant that conduct may be to the agency or relationship that is the source of fiduciary duty. As Fletcher Moulton LJ pointed out in In re Coomber; Coomber v Coomber, fiduciary relations are of many different types and where there is a fiduciary relation the court may interfere and set aside acts which, between persons in a wholly independent position, would have been perfectly valid. His Lordship then added: "Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it. They conclude that every kind of fiduciary relation justifies every kind of interference. Of course that is absurd. The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case, when one reads the judgment of the Court on those facts, than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them." As Mason J said in Hospital Products Ltd v United States Surgical Corporation: "it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case." In the same case, Gibbs CJ said: "Fiduciary relations are of different types, carrying different obligations ... and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose.""
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."
In Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [32], French CJ and Keane J said (omitting footnotes): "The protective rationale for the proscriptive duties attaching to a fiduciary's powers was explained by Mason J in Hospital Products Ltd v United States Surgical Corporation, and quoted with approval in Pilmer v Duke Group Ltd (in liq): "It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed"."

[6]

Parties

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

[7]

Two proceedings commenced in 2006

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.
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.
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.
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: 1.3 Discharge of Retiring Trustee On and from the date of this deed the Retiring Trustee is discharged from further performance of its obligations and duties as trustee of the Trust. 1.4 Assignment of Trust's debts The Retiring Trustee must give notice in writing to each person or entity owing moneys to the Retiring Trustee as trustee of the Trust and do all such things as may be necessary for the assignment to the New Trustee of any debt or chose of action. 1.5 Indemnity The New Trustee indemnifies the Retiring Trustee against all debts which the Retiring Trustee has incurred and which are unpaid at the time of execution of this deed by all parties, while acting under and in terms of the Trust Deed and undertakes and agrees that the New Trustee will pay and discharge all such debts out of the assets of the Trust in accordance with the terms of credit or otherwise under which such debts were incurred.
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.
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.

[8]

Mr Naaman's 2009 proceedings against Mr Peter Sleiman and Jaken

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.
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.
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.
On 25 February 2016, Young J entered orders in favour of Mr Naaman and JPG as follows: 3. Order [Jaken] pay [Mr Naaman's] costs of the whole proceedings other than the costs specifically dealt with by the Court of Appeal. 4. That judgment be entered for [Mr Naaman] against [JPG] in the amount of $3,446.755.55. 5. Declare that [JPG] is entitled, as against [Jaken] and generally, to be indemnified out of the assets of the Sly Fox Family Trust for liabilities incurred by it in its capacity as trustee of the Sly Fox Family Trust, including in respect of the judgment entered against [JPG] in these proceedings. 6. Further declare that [Mr Naaman] is subrogated to the rights of [JPG] for its entitlement to be indemnified from the assets of the Sly Fox Family Trust for its liability to [Mr Naaman] in respect of the judgment to be entered in these proceedings, subject only to the costs and expenses of the liquidator of the creditors' voluntary winding up of [JPG] and the claim of $2,500 which has been referred to in the evidence.
No appeal has been brought from those orders, which continue to bind the parties.
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".
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.

[10]

The reasons of the primary judge

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: First, Jaken holds the Kings Cross Property as trustee of the Sly Fox Trust. The plaintiffs accepted that the purported attempt to change that position in December 2014 (see [175] above) by Jaken becoming the trustee of the Sly Fox 1 Unit Trust and Sly Fox 2 Unit Trust was ineffective. Second, there was no dispute that pursuant to the Young J Orders: (1) Mr Naaman was a judgment creditor of JPG in the latter's capacity of trustee of the Sly Fox Trust; (2) JPG was entitled to be indemnified out of the assets of the Sly Fox Trust in respect of JPG's judgment debt to Mr Naaman; and (3) Mr Naaman was subrogated to the rights of JPG to be indemnified out of the assets of the Sly Fox Trust in respect of JPG's judgment debt to Mr Naaman. Third, it was accepted that (subject to the reserved for consideration issue of accounting) Mr Naaman had a caveatable interest in the Kings Cross Property by virtue of his position as a creditor of JPG who was subrogated to the rights of JPG to be indemnified out of the assets of the Sly Fox Trust in respect of JPG's judgment debt to Mr Naaman. Fourth, the cross-defendants accepted that Mr Naaman had standing to claim: (1) declarations in relation to his alleged caveatable interest in the Kings Cross Property; (2) relief under s 37A of the Conveyancing Act 1919 (NSW) (the CA) and the equivalent s 172 of the Property Law Act 1958 (Vic) (the PLAV); (3) damages for intentional interference with contractual relations arising out of the alleged breach of the Rein J Orders; (4) that Peter Sleiman and Tony Sleiman are jointly and severally liable for the Debt by operation of s 197 of the Corporations Act; and (5) that a receiver should be appointed to the assets of the Sly Fox Trust for the purpose of a judicial sale as a creditor of the Sly Fox Trust. Fifth, the cross-defendants accepted that the Rein J Orders of 18 June 2014 were made by consent and constituted a contract between Mr Naaman, Jaken and Peter Sleiman. It was also accepted that Peter Sleiman and Tony Sleiman were aware of the Rein J Orders at the time they were made or shortly after. Those orders were dissolved on 10 March 2015 by order of Stevenson J.
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. 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. an email purportedly dated 11 April 2014 concerning the removal of the caveats was a fabrication (at [326]); 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. 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. a document purporting to vary the Sly Fox Family Trust, which was inauthentic (at [358]).
None of those findings was challenged on appeal.
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.

[11]

Primary judge's reasoning on questions of principle

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]: Fifth, 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: Tennant v Trenchard (1869) LR 4 Ch App 537; ANZ Banking Group Ltd v Intagro Projects Pty Ltd [2004] NSWSC 1054 at [14]; Melbourne Tramways Trust v Melbourne Tramway & Omnibus Company Ltd (1887) 13 VLR 487 at 490; Re Pumfrey (1882) 22 Ch D 255 at 265; Re Stucley [1906] 1 Ch 67; Davies v Littlejohn (1923) 34 CLR 174 at 184; Hewett v Court (1983) 149 CLR 639 at 663; E I Sykes and S Walker, The Law of Securities: an account of the law pertaining to securities over real and personal property under the laws of Australian jurisdictions, 5th ed (1993) Sydney, Lawbook Co Ltd at 198. [Emphasis added].
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: To my mind, then, it follows in principle that a former trustee does not have a right to retain as against a new trustee, the trust assets as security for an accrued right of indemnity, though 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.
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: The short answer is that JPG (and, by subrogation, Mr Naaman) was entitled to follow those assets into the hands of third parties (other than bona fide purchasers for value without notice) who will hold them on a constructive trust imposed by the court in aid of JPG's proprietary interest in the Sly Fox Trust assets.
His Honour also relied upon Ron Kingham Real Estate Pty Ltd v Edgar [1999] 2 Qd R 439 at 443-444 for two propositions: First, it is directly contrary to Jaken's submission (which the Court rejects) that the only relief open to JPG in relation to assets that may have been paid away from the Sly Fox Trust would be to appoint a receiver to the Sly Fox Trust who could then pursue the funds. Second, if the subrogated creditor is entitled to sue the recipient of the funds on the basis of the trustee's right of indemnity against those recipients (whether or not beneficiaries), there is no reason why the same principle would not apply to assets that have been paid away by or from a successor trustee. The point is that whether or not the trust assets are legally held by the first trustee or the successor trustee, they remain impressed with the lien in favour of the first trustee to whose rights the creditor is subrogated.
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.
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: 73. When Belgravia was substituted as trustee and thereby acquired legal ownership of the Trust assets, it became a fiduciary vis a vis Rothmore Farms, or a constructive trustee with respect to the protection of Rothmore Farms' right of indemnity against those assets. Belgravia was obliged not to act with respect to the assets of the Trust in a way which jeopardised Rothmore Farms' right of indemnity and its lien over the assets. … 76. It follows that when Belgravia acquired legal ownership of the Trust assets, it did so subject to the equitable lien or charge over those assets in favour of Rothmore Farms to the extent of Rothmore Farms' indebtedness to the banks. 77. Furthermore, Rothmore Farms' right of indemnity and its lien over the assets of the Trust took priority over the equitable interests of the beneficiaries of the Trust. … 79. Effectively, the equitable interest which remained in Rothmore Farms reduced pro tanto the interest of the beneficiaries: ".. the trust property ... where there is a right in the trustee to indemnity from the assets, at any time is limited to the beneficial interest in the assets remaining after deduction of the value of the trustee's interest comprising his right to indemnity out of the assets." (Kemtron Industries Pty Ltd v Commissioner of Stamp Duties and the cases there cited. See also Re Neander Constructions Pty Ltd.) 80. When Belgravia resolved to vest the Trust and distribute the assets to Andrew Cooper, it did so as part of a process of carrying out a dishonest or fraudulent design, designed in part to prevent Rothmore Farms from exercising its lien, and in turn to prevent the banks from taking effective action to recover from Rothmore Farms its indebtedness to them. In doing so, Belgravia was in breach of its fiduciary duties owed to Rothmore Farms. … 85. Clearly, it owed a duty to maintain the Trust, rather than to dissolve it, so as to protect Rothmore Farms' right of indemnity against the Trust assets. Its distribution of the whole of those assets to one of the beneficiaries was a flagrant breach of that fiduciary duty. It is nothing to the point that Rothmore Farms' right of indemnity in the associated lien over the assets might have survived the transaction. 86. That the defendants Noelene Cooper and Robert Mills actively participated in Belgravia's breach of fiduciary duties with knowledge of its dishonest or fraudulent design cannot be denied. … 89. In my view, this is one of those cases where it can be said that Noelene Cooper's and Robert Mills' involvement with the second transaction was an expression of the fact that they were: "… acting as the corporation rather than for the corporation: … the person or persons who are the 'directing mind and will' of the corporation."… 92. So that in the circumstances of this case, rather than regarding them as participating in a breach of fiduciary duty by Belgravia, one should have regard to their conduct as one and the same as the breach of fiduciary duty by the company. In those circumstances, resort to the second limb of the Barnes v Addy principle is otiose. … 109. But it was Belgravia's breaches of fiduciary duty which Noelene Cooper and Robert Mills engineered or in which they participated which put Andrew Cooper in the position of being able to enter into the third transaction. 110. In those circumstances, there is no doubt that Noelene Cooper and Robert Mills remain liable in damages.
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".
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: Recent decisions of the High Court have shown that the classes of people whose proceedings should be entertained by a court are wider than formerly thought: see Australian Conservation Foundation Inc v Commonwealth (1980) 146 CLR 493 at 547 and Onus v Alcoa of Australia Ltd (1981) 149 CLR 27. As I have said before, the trust is the creature of Equity, rights under a trust exist only because of the orders an Equity Court may make and it is to my mind inconceivable that if a matter of mal-administration or, worse, fraud were brought to the attention of the Equity Court by a plaintiff who was a creditor, the court would not act on that motion. It certainly would not send the plaintiff away with his suit dismissed with costs because of a lack of standing. … A fortiori, where there is a trust with no beneficiary or there is a trust whose sole beneficiary itself holds its interest on trust or pursuant to fiduciary obligations, equity would permit those for whom the beneficiary holds its interest, or creditors, to approach it for relief.
The primary judge concluded at [391] that: While not in and of themselves dispositive, these dicta fortify me in the conclusion to which I have come that a creditor subrogated to a trustee's right and power of indemnity from the trust assets is entitled to sue directly those who have received, with notice, money paid away or assets disposed of improperly from the trust property or who are responsible for that [improper] conduct.

[12]

Balance of the reasoning of the primary judge

The primary judge rejected Mr Naaman's submission that the transfers impugned by him were shams. His Honour found at [400] that: Assuming in Mr Naaman's favour but without deciding that he could rely on the sham doctrine, the Court does not agree that any of the Impugned Transactions were legally shams, i.e. something other than what they appeared to be. Mr Naaman's case otherwise succeeds precisely because those transactions had the effect they purported to achieve, being the unlawful alienation of assets of the Sly Fox Trust to third parties.
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]: Jaken's principal argument was that none of the causes of action relied upon by Mr Naaman accrued, if they did at all, before 13 February 2007 when JPG ceased to be trustee of the Sly Fox Trust. Therefore, it was submitted, JPG had nothing to assign. Mr Naaman's response to this argument was that insofar as any such causes of action accrued after 13 February 2007, they were not causes of action of JPG as trustee for the Sly Fox Trust. Instead, they were causes of action which JPG had against the assets of the trust and as against the new trustee. That submission is correct because it reflects the conclusion which the Court has reached about the nature of JPG's rights both against Jaken and third parties set out above. Mr Naaman is, as the Court has already concluded, subrogated to JPG's rights in those respects. To the extent it is not so subrogated, the Court is satisfied that the deed effectively assigns to Mr Naaman all of JPG's rights in relation to the various causes of action pleaded by Mr Naaman in these proceedings. In relation to any particular one of those causes of action, no point arises insofar as whether Mr Naaman sues by subrogation to JPG's rights or as assignee of those rights.
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.
His Honour concluded at [506]-[507]: As occurred in the Rothmore Farms litigation, it seems inevitable that there will have to be a second hearing. This is because the Court will reserve consideration of the quantum of the equitable compensation for which the various cross-defendants have been found liable. Insofar as there may be a shortfall in Mr Naaman's recovery by subrogation to JPG between what would have been the outcome if the Impugned Transactions had not occurred and the final position after NAB's receivership and other steps, the Court is satisfied that shortfall is the result of the breaches of fiduciary duty identified in this judgment. The reservation of consideration extends to the parties putting submissions as to how any compensation is to be calculated, a matter not addressed so far in any detail by anyone. What is clear is that quantum cannot be sensibly addressed until such matters have been addressed as the NAB receivership of the King's Cross Property and O'Malley Hotel, whether it will be necessary to appoint receivers to the Victorian Properties and the Granville Land, the rights of NAB as a registered mortgagee over those assets, and no doubt other issues which will be identified by the parties.
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.

[15]

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

The appellants advanced no fewer than 12 reasons why Jaken did not owe a fiduciary obligation to JPG, which were as follows: 1. The fiduciary obligation would be inconsistent with the duty of single-minded loyalty owed by the trustee to the beneficiaries; 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. 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. 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. 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. 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. 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. 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. 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. The terms of the trust deed were inconsistent with an obligation breach of which could give rise to responsibility for loss or damage. 11. By reference to Equity Trust (Jersey) Ltd v Halabi (Jersey) [2022] UKPC 36 at [171], where it was said: We do not consider that it is right to speak of a lien or charge over the trust property as securing or supporting the right of indemnity. This language would be appropriate if there were a separate liability imposed on a person to pay amounts due under the indemnity, but there is no such liability. There is simply the right to have the trust assets applied in the exoneration or reimbursement of the trustee. It is that equitable right, enforceable by an order of the court requiring the trust fund to be so applied, that creates the trustee's proprietary interest. There is, in other words, no difference between the right of indemnity and the proprietary interest. The right of indemnity and the application of the fund in providing the necessary exoneration or reimbursement are one and the same thing. The appellants submitted: It's a complete misconception of the nature of the liability to treat it as though it involved some promise, obligation of any description at all. It is, as the High Court said in Carter Holt, in no way analogous to a bilateral relationship or set of rights and duties. It is, as set out in [171], a situation in which there is simply a right to have trust assets applied in exoneration or reimbursement of the, in this case, former trustee, and as their Honours go on to say, it is that equitable right enforceable by an order of the Court requiring the trust funds to be so applied which creates the so called trustee's proprietary interest. 1. 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.
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.
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].
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]: A court of equity will assist the trustee to realise trust assets to satisfy the trustee's right of indemnity, in priority to the beneficiaries' interests, and thus it is said that the trustee has an equitable charge or lien over the trust assets. It is not, however, a charge or lien comparable to a synallagmatic security interest over property of another. It arises endogenously as an incident of the office of trustee in respect of the trust assets.
It was also said to be consistent with what was said in Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 at [84]: Such action [scil, distributing assets to beneficiaries] would have entailed impermissible disregard of the beneficial interest in trust assets to which trust creditors were entitled by subrogation from Agusta, being an interest that took priority over the interests of beneficiaries and continued to subsist in trust property following the transfer to Riva as new trustee. Equity would have given full effect to that preferred beneficial interest.
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.
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".
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.
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.
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.
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: The issue with respect to the breaches of trust falls to be determined by the most basic application of the law of trusts. Where one person (Jaken) holds property, which is in equity the property of another (JPG) it holds it on trust for that other (JPG). Jaken had, at least, an obligation to protect the property of JPG: CGU Insurance Ltd v One.Tel Ltd (In liq) (2010) 242 CLR 174 at [36]. It could not, at the very least, dispose of that property for no consideration. The obligations, whether fiduciary in character or whether properly characterised as the obligation of a trustee, arises as an incident of the power that Jaken had to deal with the property of another: see, by analogy, Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [50]. Mr Naaman's ultimate submission is that in disposing of the trust property, to related parties, not for fair value, with no apparent commercial benefit, it disposed of the property in breach of trust and in breach of its fiduciary obligations to JPG.
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".
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.
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]: Standing back from the matter, it seems to me that where manifest breaches of fiduciary duties have been perpetrated by the defendants, as was found by Mansfield J with respect to their dealing with the trust assets, equity would take the view that such orders should be made, and if necessary more than one such order, so as to redress the loss suffered by the trustee, so far as is practicable. [Emphasis added.]
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.
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.
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.
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: The decision of Perry J in [Rothmore No 2] does not assist Mr Naaman because there is no reasoning in that judgment which supports a finding that a fiduciary duty is owed to a former trustee by a successor trustee in circumstances equivalent to the present case.
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.
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: KIRK JA: When does the fiduciary duty arise, come into existence? AFSHAR: in my respectful submission the fiduciary duty arises at the time that the new trustee takes over. KIRK JA: What if there are no liabilities at that point in time and none on the horizon? AFSHAR: Let me answer your Honour's question this way. In my submission the duty arises as at that point, as at the point when the successor trustee takes over. The quantum or the effect of the perhaps the size of the right of indemnity is not known, but what it does tell, it doesn't matter whether it is a dollar or a $1 million, what it tells the trustee to do is to not engage in conduct that would destroy the property. KIRK JA: Right. So just to test this, you say there is an existing fiduciary duty and even if there is no known liability reflecting the fact that there could be liabilities down the track, there might be a negligence suit five and a half years later for example, does it apply even if the fiduciary doesn't know about it? It's just that they couldn't be criticised for not knowing or does it only come into play when the fiduciary knows about this potential liability? AFSHAR: My primary submission to your Honour is that it doesn't matter whether the fiduciary knows about the liability, and the reason I make that submission is this. If the fiduciary was acting … in accordance with its obligation, it would never transfer its assets not for market value. … LEEMING JA: Suppose the trustee - let's keep it really simple. There's a single, of age beneficiary you're holding it on trust for, you're the successor trustee, I'm the beneficiary. I say, "Hand over the property you hold on trust for me". You do it. You're in breach of your fiduciary obligation to the former trustee. AFSHAR: That sort of depends, with respect, as to the lawfulness of the trustee's conduct. … Ron Kingham is perhaps a good example. In that case the beneficiaries … took the assets of the trust, and ultimately the Court said in that circumstance the former trustee may sue the beneficiaries to get those assets, and it comes down to the lawfulness and the obligation not to destroy or diminish the assets LEEMING JA: Normally we would regard trustees as being able lawfully to distribute assets to beneficiaries, and normally we would regard trustees as being obliged to distribute, particularly severable assets, to beneficiaries who were fully entitled to them. I have difficulty reconciling the fiduciary obligation with those normal incidents of a trust. AFSHAR: If your Honour pleases. LEEMING JA: If the trustee doesn't know about it, which is your primary submission. AFSHAR: If your Honour just gives me a moment. I hear what your Honour says. My response to that is that it may well be that a trustee would not be found in breach of the duty if it wasn't aware of the quantum of the claim that was made against the former trustee.
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.
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: AFSHAR: … In my respectful submission that harks then back to a question of notice and I think the discussion has me going in the direction of saying the notice might be a central element to this. In this case all of those matters are satisfied. BELL CJ: It can't arise until the new trustee is on notice of a realistic claim and the size of that claim. AFSHAR: Yes.
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. [A successor trustee] doesn't need to make an inquiry but it is when he becomes aware of it that his conscience is then driven to do the right thing in terms of the property of the trust. … I don't espouse a position that says that the new trustee has some obligation to inquire, but it has a base obligation to keep that property, and that obligation, be it called a fiduciary obligation or otherwise, as his Honour Brereton J has noted, it's still a very basal obligation. … I'm not pitching the case by reference to, as my learned friend Mr Kelly says, a prescriptive type of obligation.
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: The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles. Viewed as a remedy, the function of the constructive trust is not to render superfluous, but to reflect and enforce, the principles of the law of equity. [References omitted].
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].
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".

[16]

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

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.
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]: To my mind, then, it follows in principle that a former trustee does not have a right to retain, as against a new trustee, the trust assets as security for an accrued right of indemnity, though 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. This view accords with the conclusions of Rolfe J and Barrett J in the New South Wales cases to which I have referred. It follows that I respectfully decline to follow the observations of the Full Court of Supreme Court of South Australia in Re Suco Gold …
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.
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.
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]: The starting point is the effect of the receivership order. Receivership by way of equitable execution is summarised in Snell, Equity, 31st ed. McGhee, para 17-25 as follows: "A judgment creditor normally obtains satisfaction of his judgment by execution at common law, using the writ of fieri facias, attachment of debts and, formerly, in the case of land, the writ of elegit. There were cases, however, where the creditor could not levy execution at law owing to the nature of the property, the principal case being where the property was merely equitable, such as an interest under a trust or an equity of redemption. Another example was a covenant of indemnity or other chose in action of which the debtor has the benefit, but which could not be reached by attachment. In order to meet this difficulty, the Court of Chancery evolved a process of execution by way of appointing a receiver of the equitable interest, and if necessary supplemented this by an injunction restraining the judgment debtor from disposing of his interest in the property. This process was not 'execution' in the ordinary sense of the word, but a form of equitable relief for cases where execution was not possible. The effect of such an appointment 'is that it does not create a charge on the property, but that it operates as an injunction against the judgment debtor receiving the income' or dealing with the property to the prejudice of the judgment creditor." The authorities bear out the proposition, important in this case, that the appointment does not have a proprietary effect. It has effect as an injunction restraining the judgment debtor from receiving any part of the property which it covers, if that property is not already in his possession, but it does not vest the property in the receiver. As Cotton LJ said in Re Sartoris [1891] 1 Ch 11, 22 (CA): "It operates as an injunction restraining the defendant from getting in money which the receiver is appointed to receive." See also Stevens v Hutchinson [1953] 1 Ch 299, 305. The judgment creditor receives no interest in the received property until it is transferred to him in satisfaction of the judgment debt: Re Potts [1893] 1 QB 648, 661. … The phrase "by way of equitable execution" attached to receiverships ordered following judgment is, it has been said, capable of giving rise to confusion. As Cotton LJ said in Re Shephard (1889) 43 Ch D 131 at 135: "Confusion of ideas has arisen from the use of the term 'equitable execution'. The expression tends to error. It has often been used by judges, and occurs in some orders, as a short expression indicating that the person who obtains the order gets the same benefit as he would have got from legal execution. But what he gets by the appointment of a receiver is not execution, but equitable relief, which is granted on the ground that there is no remedy by execution at law; it is a taking out of the way a hindrance which prevents execution at common law." So also Bowen LJ said (at 137): "Equitable execution is not like legal execution; it is equitable relief, which the Court gives because execution at law cannot be had. It is not execution, but a substitute for execution." Fry LJ said (at 138): "… the appointment of a receiver was not execution, but was equitable relief granted under circumstances which made it right that legal difficulties should be removed out of the creditor's way."
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: Where property of a judgment debtor is not capable of being reached by a common law process, a court exercising equitable jurisdiction may intervene. For example, where a judgment debtor has an equitable interest in property which could not be reached by common law processes, a court of equity may intervene by appointing a receiver in aid of that judgment. However, that has nothing to do with the enforcement of final orders made by a court exercising equitable jurisdiction. Even in the case of a money judgment, it may be that a receiver will be appointed to legal property on the application of a judgment creditor if it can be shown that, because of special circumstances, other methods of execution would be inadequate or extremely inconvenient. [footnote omitted].
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.
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: The word "charge" has a general meaning and is well understood in courts of law and equity, and also in recent legislation, as something by which property may be made chargeable to claims in courts of law and equity. The meaning and effect of this term is in every case to compel the party seeking to enforce his "charge," to apply to the Court therefor. It does not indicate something to be done by the party entitled to the charge, by his own act. The trust claims in this case that it should be enabled by its own act to enforce its charge. The use of that word, however, shows that it was not intended that it should have the means by its own act to do so, but on the contrary that it should be compelled to apply to the Court to enforce the charge in the same way as all other charges have to be enforced.
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."
In Hewett v Court (1983) 149 CLR 639 at 663; [1983] HCA 7, Deane J said: An equitable lien is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness (see In re Beirnstein [1925] Ch 12 at 17-18; In re Bond Worth Ltd [1980] Ch 228 at 251; Snell's Principles of Equity, 28th ed (1982), pp 450-451). Though called a lien, it is, in truth, a form of equitable charge over the subject property (see Landowners West of England and South Wales Land Drainage and Inclosure Co v Ashford (1880) 16 Ch D 411) in that it does not depend upon possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale in pursuance of court order or, where the lien is over a fund, by an order for payment thereout (Bowles v Rogers (1800) 6 Ves 95 n; 31 ER 957; In re Stucley (1906) 1 Ch 67 at 76-77, 80; Davies v Littlejohn (1923) 34 CLR 174 at 184; [1923] HCA 64; Seton's Judgments and Orders, 7th ed (1912), vol 3, pp 2220-2225). Equitable lien differs from traditional mortgage in that it does not transfer any title to the property and therefore cannot be enforced by foreclosure.
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.
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: Possibly, the trustee's right of indemnity could be as well described as conferring a personal power (as Professor Ford argued it should be) as a proprietary interest. But the choice of description should conform to, rather than dictate, the application of fundamental principles to "solving a concrete legal problem". The trustee's right to apply trust assets in satisfaction of trust liabilities is proprietary in that it may be exercised in priority to the beneficial interests of the beneficiaries. To describe it as constituting a beneficial interest in the trust assets, and so as property, thus acknowledges the characteristic blending of personal rights and obligations with proprietary interests which is the "genius" of the trust institution. Such a beneficial interest falls naturally and ordinarily within the definition of "property" in s 9 of the Corporations Act. [Citations omitted].
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.
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.
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: In summary, the alienation by Agusta to Riva did not alter the steps that Provident could effectively have taken to enforce against the Kings Park land the money judgment it had obtained against Agusta. Both before and after the alienation, execution at law was not open to trust creditors but they were entitled to assert Agusta's preferred beneficial interest and thereby to obtain equitable execution through the sale of trust property by a receiver appointed by the court. The fact that Agusta's preferred beneficial interest and the creditors' rights of subrogation in relation to it subsisted in the trust assets after they became vested in the new trustee meant that it was not incumbent upon Agusta to obtain from Riva any particular undertaking to protect those creditors. The trust assets, when received by the new trustee, continued to have imposed upon them the entitlements derived by creditors from the former trustee's preferred beneficial interest and this was so whether or not any such undertaking was sought from or given by the new trustee.
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.
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.
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: A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client's right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor's costs.
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).
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]): I have never heard it doubted that where a mortgagee sells, and has a balance in his hands, he is a trustee of that balance for the persons beneficially interested. He takes his mortgage as a security for his debt, but, so soon as he has paid himself what is due, he has no right to be in possession of the estate, or of the balance of the purchase-money. He then holds them, to say the least, for the benefit of somebody else, of a second mortgagee, if there be one, or, if not, of the mortgagor.
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.
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.
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.
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]: The fact that the relevant behaviour has occurred in the same kind of context over the course of centuries, without equity having developed a remedy of the character now urged on the Court, of itself indicates that the development of the law in a case of this kind is inappropriate. … the assertion for the first time of a power to make monetary awards of a punitive character in equity transcends those limits in the context of conduct that has been the subject of consideration over the centuries and, to use Viscount Simonds phrase, "the great equity judges of the past" have never seen the need for any such power. This is not to say that nothing must be done for the first time. It is to acknowledge and respect the collective wisdom of our predecessors who, with respect to disputes of a kind that have occurred many times, have never felt the need to be able to award a monetary sum for the purpose of punishment, deterrence, denunciation or vindication.
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.
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.
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.

[17]

Standing (grounds 1 and 2)

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

[18]

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

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.
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.
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.
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.
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: The same circumstances of no consideration and no commercial purpose satisfy the Court that the transfer was also in breach of s 37A and is voidable.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.

[20]

The "$3.6 Million Drawdown" (ground 8)

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.
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: 10. Were the Rein J orders a contract between Jaken, Peter Sleiman, and the defendant? Yes in the sense they were the subject matter of such a contract. 11. Were Tony Sleiman and Peter Sleiman aware, at all material times, of the Rein J Orders? Yes. 12. Did Jaken further deal with, encumber or diminish or dispose of the value of the Kings Cross Property in August 2014 otherwise than in the usual course of business, by drawing down a further $3.6m and/or paying that sum to Powerhouse (Draw Down)? Yes. 13. Did Peter and Tony Sleiman cause Jaken to effect the Drawn Down? Yes. 14. Was that Draw Down in breach of the Rein J Orders? If yes, is the Drawn Down void for illegality? Yes. 15. Was that Draw Down in breach of contract? If yes, are Peter Sleiman and Tony Sleiman liable for tortious interference with Jaken and the defendant's contractual relations? No because even if there was tortious interference, damage has not been proven. 16. Was the Draw Down: (a) Voidable pursuant to s 37A of the Conveyancing Act? Yes. (b) A sham transaction? No. (c) In breach of trust? It is not necessary to answer this question given the answer in 16(d). (d) In breach of fiduciary duties? Yes. 17. Did Powerhouse: (a) Receive the $3.6m Draw Down for no consideration or inadequate consideration? Yes. (b) Knowingly receive the $3.6m Draw Down in breach of trust? Yes, but in breach of fiduciary duty rather than trust. (c) Knowingly assist in the $3.6m Draw Down in breach of trust? Yes, but in breach of fiduciary duty rather than trust. 18. Does Powerhouse hold the $3.6m on trust for the Trust and/or JPG? Yes, subject to an accounting. 19. Did Peter Sleiman and Tony Sleiman knowingly assist in the $3.6m Draw Down in breach of trust? Yes, but in breach of fiduciary duty rather than trust. 20. Are Peter Sleiman and Tony Sleiman liable for equitable compensation for the value of the $3.6m Drawdown? Reserved for further consideration.
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].
On 1 July 2022, the primary judge made the following orders relating to the Drawdown and reflecting the answers to most of the questions: 7. The drawing down by JPA of a further $3.6m and paying that sum to Powerhouse Corporation Pty Ltd (Powerhouse), the sixth cross-defendant (Draw Down), was in breach of the orders made by Rein J on 18 June 2014 (Rein J orders), and thus void for illegality. 8. The Draw Down was undertaken with an intent to defraud or hinder creditors in breach of s 37A of the Act. 9. JPA, Peter Sleiman and Tony Sleiman effected the Draw Down in breach of their fiduciary duties. 10. The Draw Down is void. 11. Powerhouse received the Draw Down from JPA knowingly in breaches by JPA, Peter Sleiman and Tony Sleiman of their fiduciary duties. 12. Powerhouse at all relevant times held the proceeds of the Draw Down on trust for JPG to the extent of all of the liabilities owed to JPG / Mr Naaman, and beyond that, on constructive trust for the Trust.
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.
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".
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.
Both facilities were expressed to expire on 31 December 2014.
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.
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.
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.
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.
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".
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.
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".
The primary judge recorded at [158]: Also on 18 June 2014, Peter Sleiman met with, among others, Mr Peter Hartley of NAB to discuss a "plan" proposed by Peter Sleiman to increase Jaken's facility to $12,000,000 and reduce the Powerhouse facility. The fact of this meeting and the "plan" was confirmed in an email from Mr Hartley to Peter Sleiman and others dated 20 June 2014.
At [443] the primary judge summarised the refinancing as follows: By letters dated 21 August 2014 to Jaken as trustee for the Sly Fox Trust and to Powerhouse as trustee for the PeteJake Family Trust, the NAB varied their respective facilities. Jaken's facility was increased from $8,400,000 to $12,000,000, with the NAB's offer accepted by Tony Sleiman on 22 August 2014. Powerhouse Corporation's facility was reduced from $10,600,000 to $7,000,000. This was just over two months after Rein J had made freezing orders against Jaken.
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).
The primary judge described the transactions on 8 September 2014 as follows: On 8 September 2014, several transactions occurred: (1) Jaken drew down $12,000,000 on its new facility which was contained in a newly established NAB account. (2) The $12,000,000 was paid into an account held by Powerhouse with the description "Debt reallocation". (3) $10,525,000 was paid from the account held by Powerhouse to Powerhouse's loan account, which reduced the latter to zero. (4) The amount of $1,422,954.86 was paid from the account held by Powerhouse to a business cheque account held by Jaken. (5) An additional $7,000,000 was deposited into Jaken's cheque account with the description "debt reallocation". While the source of that funds is not identified in the bank statements, the Court infers that amount was debited to a loan account of Powerhouse and is the $7,000,000 limit and balance referred to in the correspondence set out [below]. (6) $8,400,000 was then deposited into Jaken's loan account to clear it. The final result of the transactions referred to in the previous paragraph was that Jaken then had a loan account of $12,000,000 and Powerhouse's loan account had been reduced to $7,000,000.
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.
The primary judge made four findings, as follows: 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. 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. 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. 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.
His Honour regarded the effect of the transactions as being that Jaken had become subject to an additional debt. His Honour said at [463]: Jaken's former facility was coming to an end. A new facility agreement was entered into for a larger sum. While it may be accepted that Jaken may have had liability to NAB for the entire borrowings of Jaken and Powerhouse under "all moneys" provisions of various security instruments, it would be contrary to both substance and commercial reality to overlook the fact that by its new facility agreement, Jaken's express liability as principal or primary debtor to NAB increased by $3.6 million. Of the $12 million which Jaken drew from the new facility and paid away to Powerhouse, this necessarily included the $3.6 million, notwithstanding that Powerhouse appears to have repaid $1.422 million of that $12 million and, through a separate facility, also paid $7 million to Jaken (producing the amount of $8.4 million that was used by Jaken to clear its former loan account).
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: [i]t could not be in the usual course of business if, as the Court has found, there was no commercial purpose or benefit to Jaken demonstrated by assuming the additional liability and paying away the funds to Powerhouse. To that extent, the drawdown of the $12 million and payment away of that sum to Powerhouse (but crediting back the $1.422 million repaid by Powerhouse to Jaken) is void as a breach of the Rein J Orders.
His Honour rejected Jaken's submission that there was no alienation of property for the purposes of s 37A, finding as follows at [465]: Jaken paid away $12 million to Powerhouse as part of a series of transactions which must have included the $3.6 million, being the amount by which Jaken's liability as principal to NAB increased over its former $8.4 million facility. That paying away, in the context of the series of transactions identified in [446] above, was an alienation. The Court finds that there was an intent to defraud or hinder creditors on the part of Jaken through both Peter Sleiman and Tony Sleiman given the absence of any commercial purpose or benefit to Jaken of assuming that additional debt as principal, Peter Sleiman's obvious authorship of the arrangements, the knowledge on the part of both of them of the proceedings being brought by Mr Naaman and the imminence and subsequent making of the Rein J Orders. The inescapable conclusion is 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 payment to Powerhouse, to the extent of $3.6 million, should be voided under s 37A.
His Honour was: well satisfied that JPG has made out a cause of action against Jaken for breach of its fiduciary duty sounding in equitable compensation insofar as Jaken paid away $3.6 million which would otherwise have been available to it under its new facility to meet any obligation to indemnify JPG (to which right Mr Naaman is subrogated). Importantly, the same conclusion follows in relation not to the paying away, but quite separately in relation to assuming the increased primary liability to NAB for no commercial benefit. This is completely inconsistent with JPG's obligation not to diminish the assets of the Sly Fox Trust available to meet JPG's right of indemnity.
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.
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".
In oral submissions, the appellants emphasised the interconnectedness of the borrowings by Jaken and Powerhouse: If these were two transactions which were not joined at the hip from the outset but came together in August 2014, the situation would be arguably different. But every last one of these dollars went out of the bank in 2011. The total was progressively reduced by 3 million and the same indebtedness was structured but not altered in any way that involved any disposition of property on this occasion in August 2014 or at all. One could test it this way. It's said that there was a payment away of 3.6 million. But plainly there wasn't a payment away of 3.6 million. The 3.6 million remained precisely where it was. If it was a payment away of 3.6 million, then the 19 would have 3.6 more million attached to it with a balance of account at 22.6, which it plainly doesn't. The difference is commercial substance and reality in circumstances where you've got the arrangement that was put in place in 2011, and it is then restructured, as it plainly was, in 2014. Debt isn't from the point of view of the debtor, isn't property which may be said to be alienated. If it was money it could be paid away, but this was a liability not an asset. No asset was moved and there was no subtraction from any liability because each was still liable for the lot. It's as simple as that. The purpose of s 37A is to protect or to provide a remedy against a situation where real assets against which a creditor might seek to recover are put beyond reach. Nothing of the kind happened here. The situation of Jaken didn't change because its exposure to the National Australia Bank remained exactly the same. Indeed, if anything it was reduced because it no longer had $22 million in overall liability to the bank but 19. That's the way we put it. It matters not how hypothetically one might enter anything on the books. This is a $19 million mixed contingent liability, but a liability nevertheless. It would be different if there were additional moneys or changes in security, but there was none of that. Nothing changed other than an advantageous transaction was taken up in order to obtain a favourable interest rate for borrowings for the next period. Its purposes were perfectly legitimate because, as the emails indicate, they were to obtain the advantage of five years fully fixed and advantageous interest rate. That's our position in relation to that transaction.
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.
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.
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].
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: An order that the second defendant [Jaken] (the Respondent) 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' Lot X DP XXXXXX and having street address XXX William Street Kings Cross (the Kings Cross Property) until further order of this court.
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.
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.
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.
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.
The only point made by Mr Naaman contrary to the above in writing was thus: the Appellants have failed to expose any error in the primary judge's reasoning at J[463], namely that by the new larger facility it obtained, Jaken further increased its indebtedness as primary debtor and encumbered its security, the Kings Cross Property, further. That was, as the primary judge found, the "commercial reality" (J[463]) of the transaction of which Mr Naaman complains; the existence of the NAB Charge and other documents imposing "all moneys" provisions are entirely beside the point (cf AS[23]).
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: in my respectful view the $3.6 Million Drawdown is an example of where a "further agreement imposes an additional debt on the company". Jaken's former facility was coming to an end. A new facility agreement was entered into for a larger sum. While it may be accepted that Jaken may have had liability to NAB for the entire borrowings of Jaken and Powerhouse under "all moneys" provisions of various security instruments, it would be contrary to both substance and commercial reality to overlook the fact that by its new facility agreement, Jaken's express liability as principal or primary debtor to NAB increased by $3.6 million. Of the $12 million which Jaken drew from the new facility and paid away to Powerhouse, this necessarily included the $3.6 million, notwithstanding that Powerhouse appears to have repaid $1.422 million of that $12 million and, through a separate facility, also paid $7 million to Jaken (producing the amount of $8.4 million that was used by Jaken to clear its former loan account).
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.
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.
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.
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.

[21]

Alienation of property to defraud creditors

Section 37A(1) provides that: Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.
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.
The joint judgment in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [65]-[68] said: … [I]t has been held that, for the purpose of s 37A and its equivalents, "alienation" is a parting with property and includes a parting with some interest in the property. Mayo J in In re Symon: Public Trustee v Symon said of the meaning to be given to the word "alienation" as used in the Crown Lands Act (SA): "'Alienation' denotes the act, or series of acts, of alienating, and takes place whenever the owner of land, or of an interest therein, so acts as to divest himself of his interest or some lesser interest, and to vest the same in another person (Lang v Castle). Not every agreement that relates to property is necessarily an alienation or an undertaking to alienate. If all that is to be made over is a mere personal right, and not in the nature of property, there will, I apprehend, be no alienation". Alienation is the transfer of value from one person to another. It is usually understood as applying only to a transfer of property effected by the action of the transferor, as distinct from a transfer by involuntary operation of law. Money, as property, is clearly susceptible of transfer or alienation as is any other property. The declarations of the dividends (which appear to have been final not interim dividends) gave rise to debts payable by the company to the shareholders. The alienation of property was made by the company in discharging its indebtedness to the shareholders. [footnotes omitted]
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].
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.
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.
At one stage, it was said that what was alienated was the "value": KIRK JA: What property of JPA was alienated such as to be the subject of 37A? AFSHAR: The unencumbered value, that is the equity, that's what I … LEEMING JA: Well, that's a helpful answer because it means I think I now understand the difficulty I have. Value is an accounting concept; it's not property.
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.
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.
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.
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.
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.
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.

[22]

Conclusion and orders

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.
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.
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.
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."
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.
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.
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).
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.
The formal orders I propose are as follows:
Grant leave to appeal.
Appeal allowed in part.
Set aside the answers to questions 1-4, 5(c) and (d), 6(b) and (c), 7, 8, 12, 14, 16(c) and (d), 17(b) and (c), 18, 19, 28(c) and (d), 29(b) and (c), 30, 31, 32, 33, 34, 35, 36, 37.
Set aside orders 1(b)-19 and 21 made on 1 July 2022.
Direct the parties to file and serve, within 14 days of today, an agreed form of answers to the questions, any order as to the costs of the appeal, and any other orders which this Court should make, or in default of agreement, the parties to file and serve within 14 days of today the answers and orders for which they contend accompanied by submissions not exceeding ten pages in support, and to file any submissions in response not exceeding five pages within 7 days thereafter, with a view to this Court resolving all outstanding issues on the papers.
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.
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.
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: One may wish in the interests of the mortgagor to set a standard of proper conduct for the mortgagee. But unlike in New Hampshire, no court in Australia or England, for example, would describe that standard as fiduciary - even though their standard would, most likely, differ little from that of New Hampshire. [From "The Fiduciary Principle", reproduced in Fiduciary Obligations (Federation Press, 2016 reproduction) at [663], citation omitted; see also [720]. As to what duties a mortgagee exercising a power of sale is subject to, see eg JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (LexisNexis, 5th Edition, 2015) at [2-215]-[2-230]].
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.
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.
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.
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.
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.
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.
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.