Restitution Discussion Group Archives
| Sender: |
James Douglas |
| Date: |
Tue, 12 Aug 2003 23:25:13 GMT |
| Re: |
The trustee's right to indemnity |
Have a look at Kemtron Industries Pty Ltd v Commissioner
of Stamp Duties [1984] 1 Qd R 576 at 584-585 where McPherson J said:
So far I have spoken of the liabilities
of the trust. But the trust in not an entity recognized by the law,
and the current liabilities referred to in the balance sheet are really
liabilities of the trustee. The rule is that a trustee is personally
responsible for liabilities including debts properly incurred by him
in the course of administering trust property: see Octavo Investments
Pty. Ltd. v. Knight (1979) 144 C.L.R. 360, 367. A creditor has no direct
claim or remedy against the trust assets, but must look to the trustee
personally: Worrall v. Harford (1802) 8 Ves. Jun. 4, 8; 32 E.R. 250,
252; Re Evans (1887) 34 Ch.D. 597. The trustee in his turn has in respect
of liabilities so incurred the right to be indemnified out of the trust
assets. He also has in general a right to be indemnified by the beneficiaries
personally, including those beneficiaries who may have acquired their
interest in the trust assets by assignment from another beneficiary:
Hardoon v. Belilios [1901] A.C. 118. The right to a personal indemnity
of this kind is not relevant or relied on in this instance because here
the trust instrument in cl. 18.3 expressly excludes that right: cf.
Hardoon v. Belilios [1901] A.C. 118, 127.
The right of the trustee to indemnity
from the assets is an incident of the office of the trustee and is inseparable
from it: see Worrall v. Harford (supra). For that reason it is probably
incapable of being excluded. The Trust Act 1973 - 1981 now contains
a statutory expression of the right to such indemnity which is not capable
of being excluded by the trust instrument: s. 65. In the exercise of
his right of indemnity the trustee may resort to the trust assets for
the purpose of discharging liabilities incurred but not paid, and also
for the purpose of reimbursing himself in respect of liabilities paid
by him out of his own funds: Jennings v. Mather [1901] 1 Q.B. 108; affd.
[1902] 1 K.B. 1; Octavo Investments Pty. Ltd. v. Knight (1979) 144 C.L.R.
360, 371. For that purpose he has a lien or right of retention over
the trust assets pending such payment or reimbursement: ibid.
That approach was recently affirmed in the Supreme Court
of New South Wales in JA
Pty Ltd v Jonco Holdings Pty Ltd (2000) 33 ACSR 691 at 706, 713-14
per Santow J at [87]. See also Jessup v Queensland Housing Commission
[2001] QCA 312 at [14].
The statutory regime in most Australian states other
than Queensland supports a power to limit the right to indemnity. See
the following passage from Halsbury's Laws of Australia:
[430-3795] Provision in the trust instrument:
Except in Queensland and South Australia, the trust instrument may expressly
provide that the trustee's right to indemnity and reimbursement may
be denied or reduced in specific circumstances, or generally. 1
In that such a clause purports to oust a fundamental aspect of trusteeship,
for the court to give effect to it the settlor's intention to exclude
or restrict the trustee's right of indemnity must be stated in clear
terms. 2 In Queensland the statutory right of indemnity applies
irrespective of anything to the contrary in the trust instrument. 3
A similar outcome would appear to be the case in South Australia, where
the trustee legislation does not make the right of indemnity subject
to the trust instrument. 4
Notes
1. This is supported by both case authority
and the trustee legislation. As to the former see McLean v Burns Philp
Trustee Co Pty Ltd (1985) 2 NSWLR 623 at 640-1; 9 ACLR 926 per Young
J; RWG Management Ltd v Cmr for Corporate Affairs [1985] VR 385 at 395
per Brooking J. But see JA Pty Ltd v Jonco Holdings Pty Ltd (2000) 33
ACSR 691 at 706, 714 per Santow J.
The trustee legislation in the Australian
Capital Territory, the Northern Territory, New South Wales and Tasmania
provides that the statutory right of indemnity applies 'without prejudice'
to the terms of the trust instrument:
(ACT) Trustee Act 1925 (NSW) s 59(3)
The Victorian and Western Australian
statutes each contain a general provision to the effect that the powers
conferred by those statutes apply if and only if a contrary intention
is not expressed in the trust instrument:
(VIC) Trustee Act 1958 s 2(3) Strictly speaking, trustees do not
exercise a power of indemnity, but rather a right. Compare RWG Management
Ltd v Cmr for Corporate Affairs [1985] VR 385 at 395 per Brooking J
(his Honour treated the indemnity as a power for the present purposes).
2. JA Pty Ltd v Jonco Holdings Pty
Ltd (2000) 33 ACSR 691 at 714 per Santow J.
3. (QLD) Trusts Act 1973 s 65. See
also Kemtron Industries Pty Ltd v Cmr of Stamp Duties (Qld) [1984] 1
Qd R 576 at 585 per McPherson J, SC(QLD), Full Court; JA Pty Ltd v Jonco
Holdings Pty Ltd (2000) 33 ACSR 691 at 706, 713-14 per Santow J.
4. (SA) Trustee Act 1936 s 35(2).
Regards,
James Douglas
Dear Colleagues,
Does anyone know of any Commonwealth
caselaw or academic commentary dealing with the question of whether
or not a trust deed can expressly exclude the trustee's right to an
indemnity from the trust corpus?
Sincerely,
--
(NT) Trustee Act 1893 (SA) s 26
(NSW) Trustee Act 1925 s 59(3)
(TAS) Trustee Act 1898 s 27(1).
(WA) Trustees Act 1962 s 5(2), 5(3).
Jason Neyers
Assistant Professor of Law
Faculty of Law
University of Western Ontario
N6A 3K7
(519) 661-2111 x. 88435
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