Decision impact statement
Bruton Holdings Pty Limited (In Liq) v Commissioner of Taxation
Venue: Federal Court of Australia
Venue Reference No: NSD 1195 of 2010
Judge Name: Stone, Jacobsen and Edmonds JJ
Judgment date: 17 June 2011
Appeals on foot:
No.
Impacted Advice
Relevant Rulings/Determinations:- Not applicable
Subject References:
Trusts and Trustees
Indemnification out of trust fund
Litigation expenses - Trustee acting for authorised purpose
Duties of bare trustee - Powers of trustee
Précis
The case concerned whether a former corporate trustee was entitled to indemnification by exoneration or recoupment from trust assets for particular costs and expenses incurred after it became a bare trustee.
Brief summary of facts
Bruton Holdings Pty Ltd ("Bruton") was the trustee of the Bruton Educational Trust.
On 28 February 2007 Bruton appointed Administrators and ceased to be trustee of the Trust (as the office of trustee was vacated automatically upon the trustee appointing Administrators under the Trust Deed). Thereafter Bruton was a bare trustee of the trust assets.
On 30 April 2007 the winding up of Bruton was resolved.
On 8 May 2007 the ATO issued a Notice pursuant to s260-5 of schedule 1 to the Taxation Administration Act 1953 ("the s260-5 notice") to Piper Alderman requiring the firm to pay $447,420.20 which it held for Bruton.
Bruton commenced proceedings seeking a declaration that the s260-5 notice was void ("the primary proceeding"). Allsop J of the Federal Court granted the declaration sought by Bruton. The ATO's appeal to the Full Court was allowed and the Judgment set aside. Bruton's application for special leave to the High Court was allowed and the High Court subsequently set aside the orders of the Full Court and ordered that the appeal to the Full Court be dismissed (together "the litigation").
After the High Court Decision, a dispute followed between the ATO and Bruton regarding whether various costs, including the shortfall between Bruton's solicitor and client costs and the amount of its party and party costs of the litigation, should be paid from the trust fund.
The ATO considered that the shortfall (and certain other costs) should not be paid from the trust fund as it was no part of Bruton's function as a bare trustee to institute the primary proceeding.
The ATO sought and obtained declarations in further proceedings ("the recoupment proceedings") that Bruton did not have a right of exoneration, indemnity or recoupment out of trust assets as it was no part of Bruton's trust obligations as a bare trustee to institute the primary proceeding and therefore the costs were not 'properly incurred' by Bruton in the administration of the trust.
Bruton was subsequently granted leave to appeal to the Full Court.
Issues decided by the court
The issue decided by the Court was limited to a discrete legal point - whether the obligations of Bruton as a bare trustee extended to commencement and conduct of the primary proceeding to challenge issue of the s260-5 notice.
It was not in contention that a bare trustee has an obligation to protect and maintain the trust property and the High Court had recently said so in CGU Insurance Limited v One.Tel Limited (in Liq) (2010) 368 ALR 439. Further, as the Court observed, what a bare trustee must do in discharge of its obligations will vary with the nature of trust property and whatever may threaten it.
The Court decided that while the litigation was not essential to realisation of the trust asset, there appeared to be no other way to protect the asset and the primary proceeding was "essentially a defensive action" in response to the ATO's attempt to garnishee the funds.
The Court concluded that the litigation was sufficient to amount to action which was necessary to protect the trust property, and that arguments that the action was unnecessary because the Commissioner of Taxation was the only significant creditor need not be considered because this was not established in the recoupment proceedings themselves.
As the Court came to the view that the primary Judge erred in finding that it was no part of Bruton's functions as bare trustee to institute the primary proceeding, it was also unnecessary for the Court to determine Bruton's alternate ground of appeal that the primary Judge erred in failing to hold that s556(1)(a) of the Corporations Act 2001 entitled it to indemnity for expenses incurred in the proceedings.
Administrative Treatment
Not Applicable
Implications for ATO precedential documents (Public Rulings & Determinations etc)
Not Applicable
Implications for Law Administration Practice Statements
Not Applicable
Court citation:
[2011] FCAFC 79
193 FCR 442
83 ATR 864
Legislative References:
Corporations Act 2001 (Cth)
500
510
513B(b)
513C(b)
Taxation Administration Act 1953 (Cth)
Schedule 1 260-5
Case References:
Boardman v Phipps
[1967] 2 AC 46
[1966] 3 All ER 721
[1966] UKHL 2
Bruton Holdings v Commissioner of Taxation
(2007) 244 ALR 177
[2007] FCA 1643
(2007) 67 ATR 618
2007 ATC 5151
Bruton v Commissioner of Taxation
[2009] HCA 32
72 ATR 856
2009 ATC 20-125
CGU Insurance Limited v One.Tel Limited (in Liq)
(2010) 368 ALR 439
[2010] HCA 26
Chief Commissioner of Stamp Duties v ISPT Pty Ltd
(1998) 45 NSWLR 639
41 ATR 29
99 ATC 4066
Commissioner of Taxation v Bruton Holdings Pty Limited (in Liquidation) (No 2)
[2010] FCA 998
Corumo Holdings Pty Ltd v C Itoh Ltd
(1991) 24 NSWLR 370
Keech v Sanford
(1726) 25 ER 223
(1726) Sel Cas t King 61
Putney Group Pty Ltd v Royal Rehabilitation Centre Sydney
[2009] NSW SC 424
Re Suco Gold Pty Ltd (In liq)
(1983) 33 SASR 99