Does the Trustee’s right of indemnity have priority over the right of beneficiaries in relation to assets?

In Chief Commissioner of Stamp Duties (NSW) v Buckle, the High Court held that a trustee’s right of indemnity out of trust assets was not an encumbrance upon the interests of the beneficiaries.

Until the trustee’s right of reimbursement or exoneration has been satisfied, it is impossible to say what the trust fund is, in the sense that it is impossible to identify assets which are held solely upon trusts binding the trustee in favour of the beneficiaries.

The right of a trustee to be indemnified has priority over the right of beneficiaries in relation to the assets.

This make sense to me and although the High Court didnt have the need to mention it, this analysis operates conceptually in the same way that a partner’s interest in a partnership isnt known until there is an account taken of the partnership assets.

The trustee’s right of indemnity is a fantastic aspect of the law of trusts and is the basis on which all contractual claims are made through the Trustee against the Trust assets. More on this later.

Reference: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 245-247 [47]-[51].