Trustees rights on removal (indemnification and exoneration)

Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677

 If a corporate trustee is removed as trustee by the operation of a disqualification clause in the trust deed, the position is as follows:

(i)          notwithstanding the appointment of a new trustee, as the former trustee, it retains its right of indemnity and/or exoneration (described above). These rights may be enforced by its liquidator against the trust assets, although it is not clear how, as the former trustee, its liquidator would proceed to enforce them (at [18] and [20]);

(ii)         there is conflicting authority (Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99 per King CJ and Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd[2008] NSWSC 1344 per Brereton J) as to whether, as the former trustee, it has the right to retain trust assets as security for any accrued right of indemnity as against any new or replacement trustee (at [19] and [21]–[25]);

(iii)        the position will be different where there has not been, and will not be, a new or replacement trustee appointed.  In that event, as the former trustee, it continues as bare trustee of the trust assets and retains its right of indemnity and/or exoneration and its lien over the trust assets ([26]); and

(iv)         however, as a bare trustee, its duties, powers and rights are limited to protecting the trust assets and that does not include any power of sale of the trust assets (at [26] and [28]);