Ron Kingham Real Estate P/L v Edgar & Anor [1997] QCA 242

Except perhaps in a limited respect, however, it is not necessary to consider those questions here. The plaintiff does not found its claim on the right of a trustee to be indemnified out of the trust assets. Instead, it relies in this action on the alternative right which a trustee has to be indemnified by the beneficiaries personally for liabilities properly incurred in the trust. That right to personal indemnity from a beneficiary has been recognised in various authorities including, most prominently, the decision of the Privy Council in Hardoon v. Belilios [1900] UKPC 66; [1901] A.C. 118, 125, where it was said the obligation of a beneficiary to indemnify the trustee rests on "the plainest principles of justice", which require "that the cestui que trust who gets all benefit of the property should bear its burden". See also Trautwein v. Richardson [1946] A.L.R. 129, 134-135; and Marginson v. Ian Potter & Co. (1976) 136 C.L.R. 161, 175-176, where Jacobs J. quoted with approval a passage from Halsbury's Laws of England, 3rd ed., vol. 38, at 943-944, describing the trustee as having the right to an indemnity "from a person sui juris who is beneficially entitled" to the trust property. The right of a trustee to indemnity from the beneficiary is capable of being expressly excluded; but the terms of the trust instrument are not in evidence, and there is nothing at all to suggest that the indemnity was excluded in the case of this Trust.

There is no doubt of the right of a creditor in ordinary circumstances to be subrogated to the trustee's indemnity in order to enforce payment of a claim by the creditor to which the indemnity relates. See, for example, Vacuum Oil Pty. Ltd. v. Wiltshire [1945] HCA 37; (1945) 72 C.L.R. 319, 325. It must, however, be acknowledged that in the reported cases where the right of subrogation has been discussed, the precise question at issue seems always to have been whether the creditor was entitled to be subrogated to the trustee's claim to indemnity out of the trust assets. We were not referred on the appeal to any specific decision of a court holding that there is a right on the part of the creditor to subrogation to the trustee's claim to indemnity against a beneficiary in person. The passage from Halsbury set out in the reasons for judgment of Jacobs J. in Marginson v. Ian Potter & Co. (1976) 136 C.L.R. 161, 176, concludes with the sentence: