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15 Sep 10 Bare trustee not entitled to indemnity out of trust assets - Bruton Holdings

The Federal Court (Graham J) has held that a trustee (Bruton) was not entitled to be indemnified out of the assets of a trust for expenses that it incurred in successfully pursuing legal proceedings against the Commissioner after the time (28 February 2007) that it ceased to be trustee of the trust, at which time it became only a bare trustee of the assets of the trust.

Graham J said, at para 55, as follows:

"As a bare trustee of the assets comprising the trust fund as from 28 February 2007, it was no part of Bruton’s functions or responsibilities to institute the current [legal] proceedings as it did on 30 May 2007 in relation to the s 260-5 notice issued by the Commissioner of Taxation to Piper Alderman on 8 May 2007. The costs incurred were not 'properly incurred' by Bruton in the administration of the trust fund. The action taken, albeit successfully, was not the action of a trustee in the discharge of its then trust obligations. The liabilities that Bruton incurred in relation to the litigation referred to in the Commissioner’s amended Amended Interlocutory Process were not incurred in the proper performance of Bruton’s duties or exercise of its powers."

The result of the case is that there will be more funds available in the trust to satisfy the Commissioner's assessment.

FCT v Bruton Holdings Pty Limited (in liquidation) [2010] FCA 978 (Federal Court, Graham J, 3 September 2010).

 


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