Extent of bare trustee's right to protect trust assets

In the case of Bruton Holdings Pty Limited (in liq) v Commissioner of Taxation [2011] FCAFC 79, the Federal Court considered a bare trustee's right to indemnification for expenses incurred in litigation commenced to protect trust property.

The court found that challenging the validity of a notice issued by the Commissioner of Taxation was a proper function for Bruton Holdings Pty Limited as a bare trustee: its duties extended to protecting and vindicating the rights attaching to trust property. As such, it was entitled to indemnification from the assets of the trust for costs incurred in pursuing that course.

This decision suggests that a bare trustee has the right of indemnity for its costs of instituting and pursuing litigation, which are essentially defensive in nature, to protect trust assets.