Commissioner of Taxation v Bruton Holdings Pty Limited

IN THE MATTER OF BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION) ACN 078 683 182 BETWEEN: COMMISSIONER OF TAXATION

AND: BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION)

Background 1 Bruton Holdings Pty Limited ACN 078 682 182 ('Bruton') was incorporated on 27 May 1997. On 28 February 2007 Richard Albarran and Geoffrey McDonald were appointed as administrators of Bruton in accordance with s 436A(1) of the Corporations Act 2001 (Cth) (the 'Corporations Act') and on 30 April 2007 Bruton's creditors resolved that Bruton be wound up, with the consequence that it was taken to have passed a resolution on that day under s 491 of the Corporations Act, that it be wound up voluntarily (see s 446A(2)), the administrators becoming its liquidators (see s 499). By virtue of ss 513B(b) and 513C(b) of the Corporations Act the winding up was taken to have commenced on 28 February 2007. 2 On 14 March 2008 Mr Albarran ceased to be a liquidator of Bruton and on 15 March 2008 Mr McDonald ceased to be a liquidator, his place being taken by Mr Robert Elliott. 3 On 8 July 1997 a Deed had been made between Michael Aitken and Bruton whereby the Bruton Educational Trust ('the Trust') was constituted. Mr Aitken was the settlor and Bruton became the first trustee of the Trust. When constituted, the trust fund comprised $10 which had been paid by Mr Aitken as settlor to Bruton as trustee. 4 Under clause 1.5 of the Trust Deed, the trustee was authorised to accept donations of money and property from members of the public, such donations to be held by the trustee in accordance with the terms of the Trust Deed. 5 Clause 10 of the Trust Deed dealt with the 'APPOINTMENT AND RETIREMENT OF TRUSTEES'. Clause 10.2 relevantly provided: '10.2 The office of a Trustee is immediately terminated and vacated if: ... (b) where the Trustee is a Corporation, it enters into administration, receivership or liquidation (whether compulsorily or voluntarily, not being merely a voluntary liquidation for the purposes of amalgamation or reconstruction).' 6 Under the heading 'Change in Trustee' clause 10.3 proceeded to relevantly provide: '10.3 In relation to any change in Trustee: (a) acts and deeds done or executed for the proper vesting of the Trust Fund in a replacement Trustee … are to be done and executed by the … retiring Trustee at the expense of the Trust Fund except that an outgoing Trustee who is or may be liable as a Trustee for taxes will not be bound to transfer the Trust Fund unless the … new Trustee indemnifies from the Trust Fund the outgoing Trustee against any present or future liability incurred by the outgoing Trustee as a direct or indirect consequence of its acting as trustee of the Trust; …' 7 Under the heading 'REMUNERATION OF THE TRUSTEE', clause 13 of the Trust Deed provided: '13 The Trustee shall be entitled to be reimbursed out of the Trust Fund for all liabilities costs and expenses properly incurred by them (sic) in the administration of the Trust Fund or otherwise under the provisions of this Deed and shall have a lien on the Trust Fund therefore (sic) but shall not be entitled to charge any remuneration.' 8 It is apparent that Bruton ceased to be the trustee of the Bruton Educational Trust on 28 February 2007, whereupon it became a bare trustee of the assets comprising the trust fund. 9 Bruton claimed to be a charitable entity entitled to be endorsed as exempt from income tax in accordance with s 50-110 of the Income Tax Assessment Act 1997 (Cth) ('the 1997 Act'). 10 On 10 October 2005 Bruton lodged an application with the Commissioner of Taxation, the first defendant in the proceedings and the applicant in the matter presently before the Court, for endorsement as a tax exempt entity as from 1 July 2000. That application was refused. 11 On 2 March 2006 Bruton lodged a Notice of Objection in respect of the Commissioner's decision, which objection was disallowed by the Commissioner on 28 April 2006. 12 On 23 June 2006 Bruton instituted proceedings number NSD 1222 of 2006 in which Bruton appealed against the objection decision of the Commissioner of Taxation, disallowing Bruton's Notice of Objection in relation to its application for endorsement as a tax exempt entity as from 1 July 2000. 13 On 3 February 2010 Bruton's appeal against the Commissioner of Taxation's objection decision of 28 April 2006 was dismissed with costs. 14 The solicitors for Bruton in proceedings NSD 1222 of 2006 had been Piper Alderman. Over a period beginning on 26 October 2005 and ending on 28 February 2007, Bruton paid to Piper Alderman some $470,000 to be held in its trust account on account of costs and disbursements of the endorsement proceedings and, presumably, the endorsement application. $450,000, being part of the said amount, was paid on 28 February 2007. No issue has been raised as to whether the amount of $450,000 was paid before or after the appointment of the administrators on 28 February 2007 and the case has proceeded on the basis that the payment came first. Under s 255 of the Legal Profession Act 2004 (NSW) Piper Alderman was required to pay the monies held by it in its trust account to or in accordance with the direction of Bruton. 15 Even without reference to clause 13 of the Trust Deed Bruton had rights of exoneration from the assets of the Bruton Educational Trust in respect of all obligations incurred by it in the administration of the trust when it was serving as trustee. Such rights were supported by a lien over the whole of the assets of the trust which amounted to a proprietary interest therein, and they survived Bruton's loss of office as trustee (see Bruton Holdings Pty Ltd (In liquidation) v Commissioner of Taxation of the Commonwealth of Australia (2009) 239 CLR 346 at [43]). 16 In a report to creditors dated 19 March 2007 Mr Albarran then one of the administrators disclosed that Bruton's only asset was 'cash currently held in Piper Alderman Lawyer's Trust Account in the sum of $470,000.' In a statement of assets and liabilities the report described the amount of $470,000 as 'Cash Held on Trust'. The liabilities were recorded as: 'Priority Creditors - Administrators Fees Fixed (Including GST) for Bruton 77,000 - Administrators Disbursements 5,000 - Liquidators Fees Fixed (Including GST) 165,000 - Liquidators Disbursements 10,000 Amount available to Unsecured Creditors 213,000 Unsecured Creditors Claims 10,000 Contingent Creditors Unknown Estimated Deficiency Nil' 17 It will be apparent that the administrators did not anticipate a Notice of Assessment issued by the Commissioner of Taxation recording an amount payable to the Commissioner for the year ended 30 June 2004 of $7,715,873.73. 18 On 26 March 2007 the Commissioner of Taxation issued such a Notice of Assessment directed to 'The trustee for Bruton Educational Trust' which recorded the taxpayer's taxable income for the year ended 30 June 2004 as $15,909,018 and called for payment of $7,715,873.73 by way of tax ($7,477,238.46) and Medicare levy ($238,635.27), which was said to be due on 30 April 2007. 19 Following the passage of the resolution for the winding up of Bruton on 30 April 2007, the Commissioner of Taxation lodged a proof of debt directed to the liquidators of Bruton for $7,715,873.73.

The section 260-5 notice 20 On 8 May 2007 the Commissioner of Taxation issued a notice to Piper Alderman requiring that firm to pay to the Commissioner of Taxation the sum of $447,420.20. The notice was said to have been given under s 260-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (the 'Administration Act'). 21 On 30 May 2007 Bruton, then in liquidation, instituted the current proceedings against the Commissioner of Taxation and Piper Alderman seeking a declaration that the notice issued under s 260-5 of the Administration Act was void by virtue of s 500(1) of the Corporations Act, which provided that any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up was void. The primary judge, Allsop J, as his Honour then was, made a declaration that the s 260-5 notice was void (see Bruton Holdings Pty Ltd (In liq) v Federal Commissioner of Taxation (2007) 244 ALR 177). A Full Court allowed an appeal by the Commissioner of Taxation from that decision. Bruton then appealed to the High Court from the judgment of the Full Court following a grant of special leave to do so. 22 The High Court ordered that the appeal be allowed with costs. It set aside the orders of the Full Court made on 25 February 2009 and, in their place, ordered that the appeal to the Full Court be dismissed with costs. The High Court held that the Commissioner's general power to issue a notice under s 260-5 was not available if a liquidator had been appointed to a company. 23 The challenge to the Commissioner of Taxation's s 260-5 notice had been the subject of the current proceedings identified as NSD 966 of 2007. The Full Court appeal from the decision of Allsop J was identified as proceedings NSD 2315 of 2007, the special leave application was identified in the High Court as proceeding S68 of 2009 and the appeal pursuant to the grant of special leave was identified as proceeding S158 of 2009. 24 On 2 November 2007 Allsop J delivered his judgment and, relevantly, made the following declaration and orders: 'THE COURT DECLARES THAT: 1. The notice dated 8 May 2007 issued by the Commissioner of Taxation pursuant to s 260-5 of the Taxation Administration Act 1953 to Piper Alderman, the second defendant, in relation to Bruton Holdings Pty Ltd (in liquidation) is void. THE COURT ORDERS THAT: 2. The first defendant, Commissioner of Taxation, take no step to rely upon notices dated 8 May 2007 issued by him pursuant to s 260-5 of the Taxation Administration Act 1953 to the second defendant, Piper Alderman, in relation to Bruton Holdings Pty Ltd (in liquidation) as Trustee for Bruton Educational Trust and in relation to the Trustee for Bruton Educational Trust. 3. The first defendant pay the costs of the plaintiff [Bruton] and the second defendant to date. …' 25 On 23 November 2007 Allsop J made the following orders in relation to the monies held in trust by Piper Alderman: 'THE COURT ORDERS THAT: A. Payment of the Piper Alderman monies: 1. The second defendant forthwith pay to the liquidators of the plaintiff the sum of $447,420.20 ("the Trust Monies") held in its General Trust Funds trust account for Bruton Holdings Pty Limited (in liquidation). 2. The liquidators of the plaintiff pay the Trust Monies into an interest bearing account ("the Account") with a banking institution, in their names as liquidators of the plaintiff. 3. Subject to order 4 below, until further order, the liquidators of the plaintiff are restrained from withdrawing, spending or otherwise disposing of the Trust Monies. 4. Order 3 above shall not prevent the liquidators of the plaintiff from using the Trust Monies to: a. pay all costs and expenses incurred by the plaintiff in respect of these proceedings, subject to the liquidators filing with the Court an affidavit in which they give their undertaking to repay these costs and expenses in the event that the first defendant succeeds on appeal and thereby becomes entitled to the Trust Monies; b. pay all costs and expenses incurred by the plaintiff in respect of the appeal filed by the first defendant, number NSD 2315 of 2004 [corrected on 9 February 2010 to read "NSD 2315 of 2007"], against the judgment delivered by Justice Allsop in these proceedings on 2 November 2007; c. meet all appropriate fees and expenses associated with the creation and maintenance of the Account; and d. meet all statutory expenses properly and reasonably incurred by the liquidators in their capacity as liquidators of the plaintiff. …' 26 It would appear that on or about 18 February 2008 and 12 March 2008 the monies held on trust by Piper Alderman were transferred into an account in the name of Bruton subject to the orders made by Allsop J on 23 November 2007. 27 According to the solicitor with the conduct of the matter for the Commissioner of Taxation, on or about 25 March 2009 Bruton 'paid over the amounts remaining from the fund after certain drawings relating to legal fees of the costs of the first instance proceedings and the appeal [to the Full Court]' ($296,590.24). Subsequently, the fund would appear to have been paid to Bruton's solicitors.

The current application 28 In the foregoing circumstances the Commissioner of Taxation, as Applicant, filed an Interlocutory Process on 23 September 2009 seeking relief against Bruton as Respondent. Piper Alderman was not a party to that Interlocutory Process. 29 Whilst it is somewhat odd that the Interlocutory Process should come before the Court in these proceedings, NSD 966 of 2007, the Commissioner of Taxation submits that he has standing to seek the relief sought founded upon a right of subrogation to Bruton's rights of exoneration supported by a lien which amounted to a proprietary interest in the fund. The Commissioner also relies upon s 254(1)(h) of the Income Tax Assessment Act (1936) (Cth) (the '1936 Act') which relevantly provided: '254(1) With respect to … every trustee, the following provisions shall apply: … (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any … trustee, as he would have against the property of any other taxpayer in respect of tax.' 30 The Interlocutory Process filed 23 September 2009 included certain prayers for interlocutory relief which were dismissed by Stone J on 23 September 2009. 31 On 7 December 2009 the following orders were made by consent: '1. Prayer 1 in the Interlocutory Process be determined as a preliminary issue. 2. Prayers 2, 3 and 4 in the Interlocutory Process be remitted to a Registrar for enquiry and report after the preliminary issue is determined. 3. The first defendant file and serve an Amended Interlocutory Process on or before 14 December 2009. …' 32 On 8 December 2009 an Amended Interlocutory Process was filed. However, on 9 February 2010 the Court made further orders referable to the form of that Amended Interlocutory Process. These orders were, relevantly, as follows: 'THE COURT: 1. Grants leave to the applicant in the Amended Interlocutory Process filed 8 December 2009 to amend prayer for relief 1a by adding at the end thereof "after 28 February 2007". 2. Orders that the question of the applicant's right to a declaration in terms of prayer for relief 1 in the Amended Interlocutory Process filed 8 December 2009 be decided separately and before the other prayers for relief in that Amended Interlocutory Process. 3. Notes that in the light of order 4(b) made by Allsop J on 23 November 2007 the applicant named in the Amended Interlocutory Process filed 8 December 2009 does not press for declaratory relief in relation to expenses incurred in proceedings NSD 2315 of 2007 [the appeal to the Full Court from the judgment and orders of Allsop J of 2 November 2007 in these proceedings]. 4. Orders, on the application of the applicant, that prayer for relief No. 1 be amended by deleting the words "proceedings NSD 2315 of 2007," …' 33 Given the orders that were made on 9 February 2010, the Amended Interlocutory Process relevantly became one seeking relief as follows: 'A. DETAILS OF APPLICATION This application is made under ss 449E and 504(1) of the Corporations Act 2001 and ss 21 and 23 of the Federal Court of Australia Act 1976. On the facts stated in the supporting affidavit, the Applicant/First Defendant applies for the following relief: 1. Declaration that the Plaintiff is not entitled to indemnification by exoneration or recoupment out of the property of the Bruton Educational Trust for expenses incurred in the proceedings NSD 966 of 2007 [the proceedings before Allsop J], or proceedings for special leave to appeal S68 of 2009 and on appeal … to the High Court of Australia S158 of 2009. 1a. Declaration that the Plaintiff is not entitled to indemnification by exoneration or recoupment out of the property of the Bruton Educational Trust for expenses incurred in the proceedings NSD 1222 of 2006 after 28 February 2007. …' 34 The Amended Interlocutory Process came before the Court on 9-10 February 2010 on the basis that prayer for relief 1 would be the sole issue for consideration. 35 It is apparent that all of the expenses in respect of which declaratory relief is now sought were incurred in proceedings instituted on 30 May 2007, three months after the termination of Bruton's office as trustee of the Bruton Educational Trust, by virtue of the entry of Bruton into administration on 28 February 2007, and after the deemed passage of a special resolution under s 491 of the Corporations Act that Bruton be wound up voluntarily. 36 It will be appreciated that orders for costs were made against the Commissioner of Taxation in favour of Bruton in the proceedings before Allsop J, in the appeal to the Full Court and in the proceedings in the High Court. 37 It was acknowledged that, from a practical point of view, the Commissioner's case on the separate question was in respect of the difference between Bruton's solicitor and client and party and party costs referable to the proceedings before Allsop J and the proceedings in the High Court, including both the special leave application and the ultimate appeal. The Commissioner's case was that that difference should not be paid out of the remainder of the fund being $296,590.24.

Relevant principles 38 A trustee who, in discharge of his trust, enters into business transactions is personally liable for any debts that are incurred in the course of those transactions. However, he is entitled to be indemnified against those liabilities from the trust's estate held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets. The charge is not capable of differential application to certain only of such assets. It applies to the whole range of trust assets in the trustee's possession except for those assets, if any, which under the terms of the trust deed the trustee is not authorized to use for the purposes of carrying on the business. In such a case, the trustee has a beneficial interest in the trust estate in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust. Such beneficial interest has priority over any other beneficial interests (per Stephen, Mason, Aickin and Wilson JJ in Octavo Investments Pty Limited v Knight (1979) 144 CLR 360 ('Octavo') at 367. 39 Octavo Investments Pty Limited had been a creditor of Coastline Distributors Pty Limited which carried on business as trustee of a trading trust engaged in the distribution of frozen foods. The directors of Octavo Investments Pty Limited had also been the directors of Coastline Distributors Pty Limited. Coastline Distributors Pty Limited went into liquidation, the commencement of the winding up being 26 July 1977. Octavo was concerned with preferential payments totalling $49,750 made by Coastline Distributors Pty Limited to Octavo Investments Pty Limited in the period 28 February 1977 to 1 June 1977. The respondents in Octavo were the liquidators of Coastline Distributors Pty Limited. Coastline Distributors Pty Limited had not carried on business on its own account but only as trustee of the trading trust. 40 The relevant law in relation to preferences when Octavo was decided was that contained in s 122 of the Bankruptcy Act 1966 (Cth), by virtue of s 293(1) of the Companies Act 1961 (Qld). The principles enunciated by Stephen, Mason, Aickin and Wilson JJ in Octavo were derived substantially from the judgment of Dixon J, as his Honour then was, in Vacuum Oil Company Proprietary Limited v Wiltshire (1945) 72 CLR 319. At 335-336 Dixon J had said: 'The creditors of a deceased person are entitled to be paid out of the assets in a due course of administration and a due course of administration does not include the carrying on of the deceased's business, except in so far as may be reasonably necessary for the purpose of realization or winding up. An executor or administrator, who carries on a business, except for that purpose, cannot, therefore, indemnify himself out of the assets in respect of liabilities he has incurred in so doing at the expense of creditors of the deceased. He cannot do so even if he is empowered by the will to carry on the business, for that power can operate only between himself and the beneficiaries and that is true, also, of any order or decree extending or adding to the powers derived from a will or other trust instrument. The liabilities the executor incurs in carrying on the business are his personal debts and give the creditors to whom he has incurred them no direct right of recourse to the assets of the estate. But, if the executor has acted under some authority binding upon those who otherwise would be entitled to the assets, their claims are subject to his right to be indemnified out of the assets in respect of liabilities he has incurred in the proper performance of his duties or exercise of his powers. He has a lien over the assets which takes priority over the rights in or in reference to the assets of beneficiaries or others who stand in that situation. But the claims of creditors of the deceased, whose rights are, of course, independent of his will, cannot be postponed so as to rank behind this lien, except by their own act or conduct. Although the executor's creditors to whom he has become indebted in the course of carrying on the business have no direct claim upon the assets, because they deal with him on the footing of his personal liability, yet in equity they may be subrogated to his right of indemnity or lien. The principle is stated in a few words by Turner L.J. in Ex parte Edmonds [(1862) 4 DeG. F. & J. 488, at p.498]:- "The executor or trustee directed to carry on the business having the right to resort for his indemnity to the assets directed to be employed in carrying it on, the creditors of the trade are entitled to the benefit of that right, and thus become creditors of the fund to which the executor or trustee has a right to resort." But the creditors of the trade carried on by the executor must, as in all other cases of subrogation, depend upon his rights, and in that sense their claims upon the assets of the estate are indirect. This is well shown by the example of an executor who, through his wrongful act, has lost his right of indemnity or has disentitled himself to an indemnity except on terms of making good a loss to the estate. In such a case the creditors of his trade can have no better right (In Re Johnson[(1880) 15 Ch. D. 548, at pp.552, 555]).' 41 The creditors of a trading trustee have limited rights with respect to the trust assets. The assets may not be taken in execution but, in the event of the trustee's bankruptcy, the creditors will be subrogated to the beneficial interest enjoyed by the trustee. The beneficial interest, which, by subrogation, the creditors, whose claims arise from the carrying on of the business, have in the assets held by a bankrupt trustee, form part of the property of the bankrupt divisible amongst his creditors (see per Stephen, Mason, Aickin and Wilson JJ in Octavo at 367). 42 Property which is an asset of a trading trust carried on by a trustee is properly described as trust property. If the trustee has incurred liabilities in the performance of the trust, then he is entitled to be indemnified against those liabilities out of the trust property and for that purpose he is entitled to retain possession of the property as against the beneficiaries. The trustee's interest in the trust property amounts to a proprietary interest, and is sufficient to render the bald description of the property as 'trust property' inadequate. It is no longer property held solely in the interests of the beneficiaries of the trust and the trustee's interest in that property will pass to the trustee in bankruptcy for the benefit of the creditors of the trust trading operation should the trustee become bankrupt (per Stephen, Mason, Aickin and Wilson JJ in Octavo at 369-370. 43 Once it is recognized that a trustee may enjoy a right of indemnity over trust property in respect of liabilities incurred by him in the administration of the trust, it follows that the creditors of a trust business may have resort to the assets of the trust to the extent of the liabilities incurred by the trustee (per Stephen, Mason, Aickin and Wilson JJ in Octavo at 371). 44 A trustee has no legal right to use or apply the trust property other than for the authorized purposes of the trust. In particular he has no legal right to apply the trust property for his own benefit or for the benefit of third parties. If a trustee, or liquidator in the case of a trustee company, is permitted to use trust property not for the discharge exclusively of liabilities incurred in the performance of the trust, but in the discharge of other liabilities as well, the money is being used for an unauthorized purpose and is being used, moreover, for the benefit of the trustee and of third parties, namely the non-trust creditors (see per King CJ, with whose reasons for judgment Jacobs and Matheson JJ relevantly agreed, in In Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99 ('Suco Gold') at 105). 45 Where a trustee company has a duty to incur debts for the purposes of the trust business, it also has a duty to pay those debts. If the company's obligation as trustee to pay the debts incurred in carrying out the trust cannot be performed unless the liquidation of the trustee company proceeds, the liquidator's costs, expenses and remuneration should be regarded as debts of the trustee company incurred in discharging the duties imposed by the trust and as covered by the trustee's right of indemnity (see per King CJ in Suco Gold at 110). 46 A corporate trustee's right of exoneration is for liabilities properly incurred in the administration of the trust (per White J in Glazier Holdings Pty Ltd (in liq) v Australian Men's Health Pty Ltd (in liq) [2006] NSWSC 1240 ('Glazier Holdings') at [40]-[43]. 47 The corporate trustee's right of indemnity extends to providing for its liability to pay remuneration to its liquidator and administrator, but only to the extent that work has been done in connection with the administration of the trust (see Glazier Holdings at [46]). 48 If expense is incurred by a liquidator in raising a fund the burden of the liquidator's time and effort in recovering monies may be charged upon the fund so raised (see In re Universal Distributing Company Limited (in liquidation) (1933) 48 CLR 171 at 174-175. 49 Section 556(1)(a) of the Corporations Act was relied upon by Bruton. It provided: '556(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims: (a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business.' In s 556(2) 'relevant authority' was defined in relation to a company to mean, inter alia, an administrator of a company or a liquidator of a company. 50 Bruton submitted that the litigation expenses incurred by Bruton as a bare trustee in this case were 'properly incurred' in preserving, realising or getting in property of the company. 51 The present case was not one where the involvement of Bruton in the litigation could be said to have been at the request of the Court and the expenses were not 'properly incurred' in preserving, realising or getting in property of Bruton (cf Glazier Holdings at [49]). 52 As Ryan, Mansfield and Dowsett JJ said in Commissioner of Taxation v Bruton Holdings Pty Limited (in liq) [2008] FCAFC 184 at [79]: '79 As the primary Judge pointed out, the liquidators are winding up a former trustee, not a "serving" trustee. … In the present case the liquidators cannot claim to have been performing Bruton's duties as trustee. It no longer holds that position. It may still hold Trust property, but as a bare trustee. Its duties, powers and rights are limited to protecting the Trust assets. The liquidators' duties, powers and rights cannot be any greater than Bruton's. …' 53 In my opinion, Bruton is not entitled to indemnification by exoneration or recoupment out of the property of the Bruton Educational Trust for expenses incurred in the proceedings NSD 966 of 2007, or proceedings for special leave to appeal S68 of 2009 or on appeal to the High Court of Australia S158 of 2009. The Commissioner of Taxation's case for a declaration to that effect should succeed. 54 In Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 Gummow J, then a Judge of this Court, addressing the question 'What is required for a "bare" trust?' said at 281: 'A distinction long has been drawn between "active" and "passive" trusts; it was first drawn in sixteenth century decisions which held that the Statute of Uses 1536 (27 Hen VIII, c 10) (Eng) executed passive but not active uses, and remains of importance in some jurisdictions in the United States: Scott on Trusts, 4th ed, 1987, ¶ 68, 69. … Today the usually excepted meaning of "bare" trust is a trust under which the trustee or trustees hold property without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party. …' His Honour proceeded to ask 'What is meant in these situations by saying that the trustee holds the property without any duties to perform other than that to convey the property to the beneficiary or as the beneficiary directs?'. His Honour indicated that the answer was supplied by Professor Waters in his work Law of Trusts in Canada, 2nd ed, 1984, p 27 where Professor Waters said: 'It is of course true that so long as a trustee holds property on trust he always retains his legal duties, namely to exercise reasonable care over the property, either by maintaining it or by investing it; he cannot divest himself of these duties. The reference, however, is to duties which the settlor has enumerated. …' (See also Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 688 G-689C.) 55 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 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. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.