Trust is defined as an equitable obligation, binding a trustee to deal with property over which he/she has control for the benefits of beneficiaries. A trustee could be a beneficiary as long as he/she is not the only one. Trustee is the person who is the legal owner and controller of the trust property. The trustee, who is usually appointed in the trust deed, manages the trust on behalf of the beneficiaries and is held accountable by being subject to fiduciary duties. A beneficiary is the person who benefits from the fiduciary relationship between the trustee and themselves. Beneficiary holds an equitable interest in the trust property as they have the right to compel the trustee to manage the trust property in accordance with the purposes of the trust and the directions and powers contained in the trust deed.
Based on the context of the question, to determine Mr Frosty Pty Ltd’s right to recover the unpaid debt from the trust, it is necessary to examine who should be responsible for the debt, Uphill Pty Ltd as the trustee or Jack and Jill as directors of the company, or both.
Following will examine the liability issue from three perspectives: separate legal entity; trustee duties imposed by the law of fiduciary obligations; power abuse and breach of obligations instructed by trust deed. In addition, right of indemnity of trustee will be discussed briefly.
Separate Legal Entity
As trust is not a separate legal entity, the trustee, as the legal owner of the trust property, carries the liabilities from using the trust assets. However, in our case, the formation of the company Uphill offers limited liability to Jack and Jill, because a company is an artificial and separate entity recognized by law as a legal person with own rights and liabilities since Salomon v Salomon & Co Ltd  AC 22. From this point of view, Mr Frosty cannot claim debt from King Trust, as it does not have the legal rights and liabilities.