FEDERAL COURT OF AUSTRALIA In the matter of Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation [2007] FCA 1643 INCOME TAX – CORPORATIONS – Notices under s 260-5 of the Taxation Administration Act 1953 (Cth) issued to solicitors of a company that was a trustee of a purpose trust after the company was wound up – relevant notice void – consideration of the position of the parties SOLICITOR'S LIEN – costs of solicitors of the company subject of a lien Corporations Act 2001 (Cth) ss 436A, 500(1), 500(3) Income Tax Assessment Act 1936 (Cth), ss 6(1) s 23(e), 95, 96, 98, 99, 99A, 102, 254(1) Income Tax Assessment Act 1997 (Cth) ss 4-5, 960-100(1)(f) 4-1, 9-1 item 11 Legal Profession Act 2004 (NSW) s 255 Taxation Administration Act 1953 (Cth) s 260-5 Cassaniti v Paragalli (2006) 229 ALR 416 Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 Christian Enterprises Ltd v Commissioner of Land Tax (1968) 72 SR 90 Donnelly v Commissioner of Taxation (1989) 25 FCR 432 Glazier Holdings Pty Ltd (in Liqu) v Australian Men's Health Pty Ltd (in Liqu) [2006] NSWSC 1240 Herdegen v Commissioner of Taxation (1988) 84 ALR 271 McQuarrie v Jaques (1954) 92 CLR 262 Macquarie Health Corporation Ltd v Commissioner of Taxation (1999) 96 FCR 238 Octavo Investments Pty Limited v Knight (1979) 144 CLR 360 Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99 Roam Australia Pty Ltd v Telstra Corp [1997] 980 FCA BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION) v COMMISSIONER OF TAXATION AND PERSONS NAMED IN SCHEDULE 'A' TRADING AS PIPER ALDERMAN NSD 966 OF 2007 ALLSOP J 2 November 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 966 OF 2007 BETWEEN: BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION) Plaintiff AND: COMMISSIONER OF TAXATION First Defendant PERSONS NAMED IN SCHEDULE 'A' TRADING AS PIPER ALDERMAN Second Defendant BETWEEN: PERSONS NAMED IN SCHEDULE 'A' TRADING AS PIPER ALDERMAN Cross Claimant AND: BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION) First Cross Defendant COMMISSIONER OF TAXATION Second Cross Defendant JUDGE: ALLSOP J DATE OF ORDER: 2 NOVEMBER 2007 WHERE MADE: SYDNEY 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 and the second defendant to date. 4. The first defendant notify the Attorney-General for the State of New South Wales of proceeding NSD 1222/2006 by providing him with a copy of these reasons. 5. Stand the proceeding NSD 1222/2006 and this proceeding over to 2.15 pm on 23 November 2007 for the making of further orders and for directions. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 966 OF 2007 BETWEEN: BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION) Plaintiff AND: COMMISSIONER OF TAXATION First Defendant PERSONS NAMED IN SCHEDULE 'A' TRADING AS PIPER ALDERMAN Second Defendant BETWEEN: PERSONS NAMED IN SCHEDULE 'A' TRADING AS PIPER ALDERMAN Cross Claimant AND: BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION) First Cross Defendant COMMISSIONER OF TAXATION Second Cross Defendant JUDGE: ALLSOP J DATE: 2 november 2007 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 This is an application by the plaintiff in proceeding NSD 966/2007, Bruton Holdings Pty Limited (in liquidation) ("Bruton"), for declarations that notices dated 8 May 2007 issued by the first defendant in those proceedings (the "Commissioner"), purportedly pursuant to the Taxation Administration Act 1953 (Cth) (the "TA Act"), s 260-5 were "void and unenforceable" and for orders pursuant to the Corporations Act 2001 (Cth), s 500(3) that the second defendant, being the partners of the firm of solicitors Piper Alderman, pay Bruton the sum of $447,402.20 and $20,467.34 held in their trust accounts. 2 The context of the application in NSD 966/2007 is the affairs of Bruton and the litigation that it has brought in this Court in proceeding NSD 1222/2006. 3 Piper Alderman filed a cross-claim proceeding in NSD 966/2007 seeking a declaration that the notices in question (to which I will refer as the "s 260-5 notices") operated subject to a solicitor's lien in favour of Piper Alderman in respect of their retainer to act for Bruton in proceeding NSD 1222/2006. Factual background 4 Bruton was incorporated on 27 May 1997. On 8 July 1997, a trust deed was executed between Mr Michael Aitken, as settlor, and Bruton (not then in liquidation), as trustee, which recited that the settlor desired to establish a trust "for the purpose of enabling and facilitating the promotion, advancement and encouragement of purposes which are charitable as that term is understood at law at or on behalf of (sic) any public benevolent organisation or institution in Australia in general and for such other public charitable purposes in Australia as shall hereinafter appear." The trust was called the "Bruton Educational Trust". I will refer to it as the "Trust". 5 The Trust was a purpose trust, plainly intended to be a valid charitable trust. See in particular the definition of the phrase "Charitable Purposes" in clause 2.1, which was in the following terms: 'Charitable Purposes' includes the provision and/or making available solely in Australia the use of money property or benefits: (a) to provide educational scholarships to students who have qualified for University admission at a State High School located more than 100 km from the main quadrangle at Sydney University or from the Administrative offices at the Australian National University and who wish to study a degree course offered by Sydney University which is relevant to and will have the capacity to ultimately benefit the rural community of Australia, but whose financial circumstances would otherwise seriously inhibit the capacity of such students to undertake the desired course of study; (b) to or for such other funds authorities and institutions referred to and for the purposes referred to in any of the sub-paragraphs of s 78 of the Income Tax Assessment Act 1936 as amended; (c) for the establishment of funds authorities or institutions referred to in clauses 2.1(a) and 2.1(b) hereof. PROVIDED THAT it shall not be necessary for such money property or benefits to be paid given or made available directly to such funds authorities or institutions (or persons employed or engaged by or working in conjunction with them) but may in the discretion of the Trustees be used to indirectly finance or otherwise assist particular researchers and/or research projects including by way of payment of the cost of assistants equipment property or benefits or making available the use of or providing assistants equipment property or benefits. 6 Clause 3 of the trust deed provided for the application of the income and capital of the trust fund. Regard was to be paid to a management committee appointed by the trustee in the application of income and capital, but only for public charitable purposes in clause 2.1, and for no other purposes. 7 Bruton, as trustee, had wide powers of investment and associated powers, including the power to institute and defend proceedings at law. Clause 10 of the trust deed dealt with appointment and retirement of the trustee. Clause 10.1 concerned resignation. Clause 10.2 concerned vacation of office in certain circumstances, stating: The office of a Trustee is immediately terminated and vacated if: (a) where the Trustee is an individual, he dies or is either found to be a lunatic or of unsound mind or becomes subject to any bankruptcy law; or (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). [emphasis added] 8 Clause 10.3 concerned changes in trustee, stating: 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 or in the continuing Trustee jointly with any additional Trustee are to be done and executed by the continuing or 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 ongoing or 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; and (b) a memorandum must be endorsed or annexed to this deed stating the name of the Trustee for the time being and must be signed by the Trustee so named and: (i) any person dealing with the Trust will be entitled to rely on the memorandum as sufficient evidence that the named Trustee is the duly constituted Trustee for the time being; and (ii) any or all Trustees (as the case may be) so named are taken to have consented to act as Trustee of the Trust subject to the terms of this deed. 9 Clause 13 of the trust deed concerned the remuneration of the trustee, stating: The Trustee shall be entitled to be reimbursed out of the Trust Fund for all liabilities costs and expenses properly incurred by them 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 but shall not be entitled to charge any remuneration. 10 In May 1997, an application was made by Bruton's former solicitors for tax exempt status under the Income Tax Assessment Act 1936 (Cth), (the "1936 Act"), s 23(e), but they were informed by the Australian Taxation Office ("ATO") that there was no endorsement requirement and that the quesiton was a matter for assessment by Bruton in the approach to its responsibilities in lodging its returns. Around that time (May 1997) Bruton sought and was given registration as a duty exempt entity for stamp duty by the Office of State Revenue in New South Wales. 11 In the affidavit material placed before me, sworn by one of the liquidators of Bruton, Mr Richard Albarran, it was said that the aim of those interested in the Trust when establishing it was the assembling of an investment portfolio with a view to generating profits to establish the trust fund and provide charitable scholarships. 12 The sole director of Bruton was Mr Neil Scott. In 1997, a colleague of Mr Scott proposed four transactions in which the plaintiff could participate (in its capacity as trustee). The income generated from such participation was to be added to the (nominal) funds settled on the trust by the settlor. The four proposals were: (a) the Gas Infrastructure Trust No 1 ("GIT"); (b) the South Australian Woolstore Trust ("SAWT") and the Western Australian Woolstore Trust ("WAWT"); (c) the Pipeline Rehabilitation Trust No 6, including the acquisition of shares in a company called Westwall Investments Limited ("Westwall"); and (d) the Bass Hill Unit Trust which owned the Rydges Hotel Bankstown. 13 It is only necessary to understand some general aspects of the involvement of Bruton in these four investments. In relation to the GIT, a company called Cayfire Pty Limited ("Cayfire") took up 999 ordinary units in the GIT and thereafter declared itself a trustee of them for Bruton as trustee of the Trust. Cayfire also entered an agreement with other entities in relation to the GIT, called the GIT Fee Agreement, under which Bruton (as trustee of the Trust) became entitled to a flow of fee income which, in the years ended 30 June 1998 to 30 June 2005, totalled $347,771. 14 The second investment, in SAWT and WAWT, generated a total income of $125,686 in the years ended 30 June 1998 to 30 June 2004. 15 The third investment was described as a "structured finance investment", which generated income in the years ended 30 June 1998 to 30 June 2001 of $325,564, albeit as a product of losses ($250,117 in 1998 and $3,405,901 in 2001) and profits ($1,862,696 in 1999 and $2,118,885 in 2000). 16 No income was received from the fourth investment. 17 None of the investments appears to have required any active business activity by Bruton. They can be said to have been passive investments. 18 The income of the trust has permitted some scholarships to be awarded, pursuant to arrangements that have been made with the University of Sydney. In 1998, one scholarship was awarded for the 1999 academic year. A student from Junee High School was given $15,000 per annum for three years. Later scholarships, of different amounts, were awarded to five more students totalling $120,000. 19 From 1 July 2000, it was necessary, by relevant legislation, ome endorsed as an income tax exempt charity. Bruton did not make that application. In 2004, during an ATO audit, Mr Scott, the director of Bruton, became aware of the need for an endorsement. Bruton then lodged the application seeking retrospective endorsement. The application was refused. 20 Proceeding NSD 1222/2006 was commenced on 23 June 2006. In it, Bruton appealed against the decision of the Commissioner disallowing Bruton's objection relating to the endorsement application. In November 2006, after some preliminary directions about the form of the proceedings, orders were made for the filing of evidence so that the matter might come on for trial in 2007. 21 On 28 February 2007, pursuant to a resolution of the sole director of Bruton (Mr Scott) Mr Albarran and Mr Geoffrey McDonald were appointed administrators of the company pursuant to the Corporations Act 2001 (Cth), s 436A. It was not the subject of dispute that this resolution had the effect of Bruton entering into administration for the purposes of cl 10.2(b) of the trust deed; nor was it the subject of dispute that Bruton thereby vacated office at that instant as trustee of the Trust. 22 On 30 April 2007, the creditors of Bruton resolved that the administration of Bruton end and that it be wound up. It was placed into liquidation on that date. The two administrators were appointed joint liquidators. 23 Up to 28 February 2007, Bruton engaged in no other activity than acting as trustee of the Trust. 24 The administrators prepared a report to creditors dated 19 March 2007. That report contained the statement that the appointment of the administrators was the result of Mr Scott being concerned that the costs of running the legal proceeding (NSD 1222/2006) even if successful, may absorb all the funds held by Bruton. The creditors of Bruton were described in the report as relating to "disbursements incurred by the Director, legal fees and accounting fees" and were estimated to be $10,000. The ATO was identified as a contingent creditor, in respect of costs in the tax proceeding and otherwise. The report also estimated so-called "priority creditors" in the form of the estimated fees and disbursements of administrators and liquidators (the latter if winding up were to occur, as it did) as follows: Administrators fees $ 77,000 Administrators disbursements $ 5,000 Liquidators fees $165,000 Liquidators disbursements $ 10,000 $257,000 25 On 26 March 2007, a notice of assessment for the year ended 30 June 2004 was issued to "The Trustee for Bruton Educational Trust" for $7,715,873.73. 26 After the resolution to wind up Bruton, the Deputy Commissioner of Taxation lodged a formal proof of debt in the liquidation of Bruton for $7,715,873.73 in the following terms: This is to state that the company was on 28 February 2007, and still is, justly and truly indebted to the Deputy Commissioner of Taxation for Income Tax. Particulars of the debt are: Consideration Amount $ INCOME TAX Income tax for the year ended 30 June 2004 7,715,873.73 Additional Tax for Late Payment 0.00 Interest Payable 0.00 General Interest Charge 0.00 _______________ GRAND TOTAL 7,715,873.73 (It will be necessary to say something of the terms of this proof and the true nature of the liability of Bruton, as opposed to the Trust, in due course.) 27 Prior to 28 February 2007, Bruton had retained Piper Alderman to act for it in proceeding NSD 1222/2006. For that retainer, Bruton provided Piper Alderman with sums totalling $447,420.20 for the costs of the proceedings on the dates referred to below. 28 On 9 May 2007, Piper Alderman received three s 260-5 notices. Each was addressed to "Piper Alderman Lawyers" at the address in Sydney at which the firm conducts its professional business. The three notices differently identified the "debtor" (of the Commonwealth) to whom Piper Alderman (as the "third party") owed money. The relevant parts of the three notices were as follows: NOTICE PIPER ALDERMAN LAWYERS, YOU are a third party who owes, or may later owe, money ("the available money") to BRUTON HOLDINGS PTY LTD (IN LIQUIDATION) ("the debtor"), of (or previously of) Unit 2/600 Darling Street, Rozelle NSW 2039, who, in terms of section 260-5 of Schedule 1 of the Taxation Administration Act 1953 has a debt payable to the Commonwealth of $7,715,873.73. … NOTICE PIPER ALDERMAN LAWYERS, YOU are a third party who owes, or may later owe, money ("the available money") to THE TRUSTEE FOR BRUTON EDUCATIONAL TRUST ("the debtor"), of (or previously of) Unit 2/600 Darling Street, Rozelle NSW 2039, who, in terms of section 260-5 of Schedule 1 of the Taxation Administration Act 1953 has a debt payable to the Commonwealth of $7,715,873.73. … NOTICE PIPER ALDERMAN LAWYERS, YOU are a third party who owes, or may later owe, money ("the available money") to BRUTON HOLDINGS PTY LTD (IN LIQUIDATION) AS TRUSTEE FOR THE BRUTON EDUCATIONAL TRUST ("the debtor"), of (or previously of) Unit 2/600 Darling Street, Rozelle NSW 2039, who, in terms of section 260-5 of Schedule 1 of the Taxation Administration Act 1953 has a debt payable to the Commonwealth of $7,715,873.73. … [emphasis in original] 29 Though formal proofs of debt have not been called for, proofs have been lodged in the winding up, in addition to that of the Deputy Commissioner of Taxation (to which I have referred), by Piper Alderman for $2,579.80 and Mr Scott for legal fees for $183.14. 30 Mr Albarran deposed in an affidavit that the liability of Bruton to Piper Alderman was not limited to $2,579.80, but extended to $22,620.52 for costs in the proceeding NSD 1222/2006. Mr Phelps, a partner of Piper Alderman, said that this latter sum was owing for work up to and including 29 May 2007 in those proceedings. Mr Albarran also deposed that Bruton's liabilities may include costs awarded against it in proceeding NSD 1222/2006, the costs of the winding up and of this proceeding. 31 Mr Albarran has investigated a payment of $400,000 made to the University of Sydney on 28 February 2007, which might be a transaction voidable as against the liquidators. Mr Albarran stated the following in one of his affidavits: In the event that the Plaintiff is successful in these proceedings and the moneys presently held in the trust account of Piper Alderman are released to the Plaintiff as property of the Plaintiff, it is my intention to take advice and consider whether recovery of that payment to the University of Sydney ought to be pursued, in the course of the winding up of the Plaintiff. Furthermore, in the event that the Plaintiff is successful in these proceedings and the moneys presently held in the trust account of Piper Alderman are released to the Plaintiff as property of the Plaintiff, I will seek advice as to whether the joint liquidators of the Plaintiff have standing to continue to prosecute the Tax Proceedings in circumstances where the ATO has lodged a proof of debt in the winding up of the Plaintiff and the Tax proceedings effectively, albeit indirectly, challenge the validity of the assessment which is the basis for that proof of debt. Advice will also be taken by me as to whether it is appropriate to apply to be appointed Receiver of the Bruton Educational Trust in circumstances where the Trust is presently without a trustee. 32 The funds in question were placed in the Piper Alderman account and dealt with as follows. On 26 October 2005 (about eight months before proceeding NSD 1222/2006 was commenced), a cheque for $20,000 was received "in anticipation" of Piper Alderman's costs and disbursements. On 29 June 2006, this was placed into a Piper Alderman account with Macquarie Bank. On 28 February 2007 (the day of the appointment of the administrators), a telegraphic transfer of $450,000 was received by Piper Alderman from Bruton "on account of costs and disbursements" into the Combined Trust Account. On 30 April 2007 (the day of the winding up) $2,597.80 was deducted from the $450,000 as payment of an account of the firm "re ATO audit". No particular point was made by anyone in argument as to the timing of these payments. 33 In correspondence between the parties, the Commissioner accepted that the amount of $22,579.80 was excluded from the notices and (as far as the Commissioner was concerned) could be used to fund Piper Alderman's outstanding fees "plus future litigations costs which may be incurred in opposing the notices". 34 Earlier this year, a Judge of the Court restrained Piper Alderman from dealing with the sums in its accounts. 35 Piper Alderman claims a lien over the credit balance in the two trust funds in respect of: (a) costs and disbursements incurred by the firm in proceeding NSD 1222/2006 up to 28 February 2007 (No dispute exists as to their entitlement to this.) (b) costs and disbursements incurred after 28 February 2007 in proceeding NSD 1222/2006, but before this argument in NSD 966/2007 (c) costs of participating in this proceeding (NSD 966 of 2007) to assert their lien over the trust fund in respect of (a) and (b) above (d) costs of continuing to prosecute NSD 1222/2006 on behalf of the liquidators if that occurs 36 In June 2007, the Commissioner filed a motion in proceeding NSD 1222/2006 to have the proceeding dismissed pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth). This motion does not presently call for disposition. The statutory context and some further facts 37 Bruton had possession of the funds that it gave Piper Alderman as trustee of the Trust. There are no beneficiaries of the Trust. All funds held by Bruton, including all funds that it provided to Piper Alderman, were impressed with the purposes of the trust deed and the Trust, subject to any claim recognisable at law or in equity. 38 Bruton ceased to be trustee of the Trust, that is under and pursuant to the terms of the trust deed, on 28 February 2007. Since then, it has held any rights to call for the funds on trust as a bare trustee for the Trust, though not as trustee of the Trust pursuant to the trust deed, its office having been vacated. 39 The Legal Profession Act 2004 (NSW) governed the relationship between Bruton and Piper Alderman. Section 255 of that Act relevantly provided: (1) A law practice must: (a)hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and (b)disburse the trust money only in accordance with a direction given by the person. Maximum penalty: 50 penalty units (2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law. In the context of a principal who is an express trustee, in particular in the circumstances of a purpose trust, the "person" contemplated by s 255(1)(a) and (b) is the person or entity from whom the funds were received, not the occupier of the office from time to time. If the solicitor has any doubt as to the legitimacy of the call, by the party who is the client, for the funds, for instance if a succeeding trustee is also calling for them, and there is a dispute, she or he can interplead: cf Cassaniti v Paragalli (2006) 229 ALR 416 at 418 [8]. 40 Subject to any proper lien, the obligation of the solicitor to account to, and only at the direction of, the client who gave the solicitor the funds can be said to be a circumstance where the solicitor "owes or may later owe money to" the client. No argument to the contrary was put; in particular, no argument was put that this obligation to account did not amount to Piper Aldeman "owing" money. There can, no doubt, be said to be a trust estate here. The terms of any trust are the expression of the obligations on the trustee and (if there be beneficiaries) the entitlements and rights of any beneficiaries. Where, as here, there is a purpose trust, and trust funds are provided to the trustee's agent to carry on litigation, there is no other person (except a new trustee) to whom the funds may be owed. In any event, the Legal Profession Act, s 255 makes plain that the moneys must be paid to, or at the direction of, the person who provided them. 41 At this point, it is also necessary to recall some elements of the legislative regime concerning the taxation of trusts. The legislation treats the trustee in its capacity as trustee of a trust as a different taxpayer or entity from the taxpayer in its personal capacity. The "trust" (in the language of the Income Tax Assessment Act 1997 (Cth) (the "1997 Act")) or the "trustee" (in the language of the 1936 Act) in its capacity as such is the taxpayer, or the "you" (in the language of the 1997 Act) whose net income is to be calculated for assessment purposes. See generally ss 4-5, 960-100(1)(f), (2), (3) and (4), 4-1, 9-1 item 11 of the 1997 Act and the definition of "trustee" in s 6(1) and ss 95, 96 and 98 of the 1936 Act. 42 Where, as here, there is no beneficiary presently entitled (the 1936 Act, ss 99 and 99A) and in some other circumstances (the 1936 Act, ss 98 and 102) the liability is imposed on the trustee in its capacity as such. 43 Under the 1936 Act, s 254(1)(b) the trustee is obliged to make returns and be assessed on income or profits or gains "but in his representative capacity only"; under s 254(1)(d) the trustee is authorised and required to retain from time to time out of any money that comes to it in its representative capacity so much as is sufficient to pay tax which is or will become due; under s 254(1)(e) the trustee is made personally liable for the tax payable in respect of the income, profits or gain to the extent of any amount that it has retained or should have retained under s 254(1)(d), but the trustee shall not be otherwise personally liable for the tax; under s 254(1)(f) the trustee is indemnified for all payments which it makes in pursuance of the Act or of any requirement of the Commissioner; and under s 254(1)(h) for the purpose of insuring the payment of tax, the Commissioner shall have the same remedies against attachable property in or under the control or under the management or in possession of the trustee as he would in respect of any other taxpayer in respect of tax. 44 Here, Bruton is liable on the assessment in its capacity as trustee of the Trust in the sum of $7,715,873.73; it is also said to be liable in its personal capacity "for the tax payable" (that is, $7,715,873.73) to the extent of any amount that it has retained or should have retained (that is, once again, $7,715,873.73). Thus, it is said to be liable for tax in both its capacities, personally and as trustee of the Trust. 45 It will be necessary to return to these issues of the respective positions of Bruton (in its historical and present capacities), the Trust, Piper Alderman and the Commissioner in due course. First, it is necessary to examine the effect and status of the s 260-5 notices. The s 260-5 notices 46 The obligation of Piper Alderman to pay funds to Bruton arises or will arise when funds are called for by Bruton, or when a direction is given by Bruton to pay as it directs. The Legal Profession Act, s 255 says so. Though the funds undoubtedly came to Piper Alderman as funds impressed with a trust, the client and principal, Bruton, bore the responsibility of executing that trust. Though it has vacated the office of trustee, it still has a legitimate legal claim to direct Piper Alderman as to the funds: the Legal Profession Act, s 255. This right also comes from any right of exoneration out of trust assets. Bruton has undertaken litigation as trustee of the Trust. In so doing, it has engaged lawyers (Piper Alderman) and exposed itself to orders for costs in the litigation. Unless disentitled by its behaviour in relation to the conduct of that litigation, it would be entitled to exoneration for any such liability out of the trust assets. That right is a right of lien or charge in the sense explained in Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 245-46 and Octavo Investments Pty Limited v Knight (1979) 144 CLR 360 at 367. 47 I will return to the question of the extent of the operation of the right to reimbursement or exoneration later. At this point, it is sufficient to appreciate that Bruton's own entitlements to possession of, and possible access to, the funds now held by its agent for the conduct of legal affairs (up to 28 February 2007) of the Trust reinforce the operation of the Legal Profession Act, s 255 and underpin the proposition that Piper Alderman owe or may owe the money to Bruton. 48 Turning to the s 260-5 notices, the notice that correctly identifies the asserted debtor to whom Piper Alderman owe or may later owe money is the first of those mentioned above – the notice which identifies "Bruton Holdings Pty Ltd (In Liquidation)". Piper Alderman must pay to, or at the direction of, Bruton; not the trustee of the Trust (there presently being none pursuant to the trust deed) or Bruton in that capacity (being the prior trustee), but Bruton. 49 It is the validity of the notice to Bruton which must be assessed. The other two can be ignored; but given that non-compliance is an offence, in fairness to Piper Alderman, they should be dealt with to clarify their position. 50 The argument of Bruton is that the Corporations Act, s 500(1) invalidates the notice. That provision in another Commonwealth statute provides as follows: 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 is void. … 51 Bruton says that its claim to exoneration out of the fund is "property" contemplated by the Corporations Act, s 9, which is in the following terms: "property" means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action. I agree. 52 Bruton says that the s 260-5 notice is a form of "attachment" for the purposes of s 500(1). I agree with the submission, for the reasons set out below. 53 The Commissioner submitted that I was bound by the Full Court in Donnelly v Commissioner of Taxation (1989) 25 FCR 432 to conclude that s 260-5 was not "attachment" for the purposes of s 500(1). Donnelly concerned notices under the 1936 Act, s 218. The Court concluded that "attachment" in the Bankruptcy Act 1966 (Cth), s 118 meant attachment by curial order and did not include the charge created under s 218 notices. Donnelly is not an authority for the legal meaning of the word "attachment" generally. von Doussa J (with whom Lockhart J agreed) began his reasoning on the meaning of the word in the Bankruptcy Act by saying the following at 446: It may be accepted that historically, and in present usage, the meaning of "attachment" may extend to means other than a process of the court by which a debt is frozen or seized; the meaning may extend to similar procedures otherwise authorised by legal authority. But the question which falls for decision is whether that extended meaning is the meaning intended by the legislature in the Bankruptcy Act, or whether the context in which the word is used indicates that it has a more restricted meaning. 54 von Doussa J then examined the meaning by reference to cognate legislation and provisions, stating the following at 448: I think further support for the construction I favour may also be found in ss 119, 119A, 205 and 205A of the Bankruptcy Act. Those sections are drafted on the assumption that officers of the court will be charged with the execution of the process of attachment and the recovery of money. More recently the amendments made by the Bankruptcy Amendment Act1987 (Cth), which introduced Div 2A of Pt IV making provision for the declaration of intention to present a debtor's petition, and the associated definitions in s 5 of "enforcement process" and "proceeds" are also drafted on the assumption that "attachment" within the meaning of the Act is a process of a court to enforce a judgment or order. 55 Hill J (with whom Lockhart J also agreed) carefully examined the history and antecedents of s 118, noting the comments of Dixon CJ in McQuarrie v Jaques (1954) 92 CLR 262 that the problems with the words "the benefit of the execution or attachment" required one to enter "one of the darker recesses of the bankruptcy law." Of particular importance in that careful discussion by Hill J in Donnelly 25 FCR at 460-468 was the fact that s 118 and its antecedents were passed in a context of Crown priority for income tax. Hill J concluded at 468: Although the question can certainly not be said to be unarguable I am of the view that when the context of s 118 in the bankruptcy legislation is examined the charge created by the service of a notice under s 218 of the Income Tax Assessment Act does not fall to be considered as an attachment for the purposes of s 118 of the Bankruptcy Act. [emphasis added] 56 In Macquarie Health Corporation Ltd v Commissioner of Taxation (1999) 96 FCR 238, a Full Court (which included Hill J) dealt with the effect of s 218 notices under the Corporations Law prior to the enactment of the current Commonwealth corporations legislation. It was unnecessary for the Court to decide the issue that is before me for a number of reasons, one of which was that the notices that were served created, before the commencement of the winding up, an interest in the nature of a statutory charge over the debts in favour of the Commissioner: see Macquarie Health 96 FCR at 267 [118]. However, at [109]-[117] the Court set out a body of reasoning which is equally applicable to s 500(1). When one considers the force of that reasoning, together with the structure of the Corporations Act, Ch 5 Pt 5.6 Div 6 Subdivision D, dealing with priorities and the ending of Crown priority for tax debts for many years, it is open to conclude (and I do) that it is contrary to the scheme of orderly winding up that the right to prove in the Commissioner can be elevated at will by him to the status of a form of secured creditor after the winding up has commenced by the service of a s 260-5 notice on a debtor of the company. 57 For these reasons, in my view, a notice under the TA Act s 260-5 is an attachment for the purposes of the Corporations Act, s 500(1), and here, having been put in force after the passing of the resolutions for voluntary winding up, is void. 58 Given these views about the s 260-5 notices, it is unnecessary to deal with other arguments as to the invalidity of the notices put forward by Bruton based on the form of the notices. The fate of the funds with Piper Alderman 59 Subject to the legitimate lien of Piper Alderman, and subject to the orders to which I will come, the funds should be paid to Bruton. Bruton seeks an order pursuant to the Corporations Act, s 500(3), that Piper Alderman pay the funds to Bruton. That provision is in the following terms: The Court may require any contributory, trustee, receiver, banker, agent, officer or employee of the company to pay, deliver, convey, surrender or transfer forthwith or within such time as the Court directs to the liquidator any money, property or books in his, her or its hands to which the company is prima facie entitled. 60 Considerable argument took place about the extent of the right of exoneration here and thus the value (as opposed to the existence of) that right. The administrators and liquidators have already, it was said in argument, accrued an entitlement to over $300,000 in fees. Since (apart from the Commissioner) the creditors' debts amount to a few thousand dollars, the amount of fees is, on its face, surprising, to say the least. It was obvious from the debate before me that the primary concern of the Commissioner (not entirely surprisingly) was the risk of rapid dissipation of the funds. 61 To an extent, some of that argument was lacking a context without knowing precisely how the fees were incurred. Some principles can, however, be stated. A trustee has a right to be indemnified or receive exoneration out of the trust for liabilities properly incurred in the administration of the trust: see generally Buckle 192 CLR 226 and Octavo 144 CLR 360. Subject to any argument here that proceeding NSD 1222/2006 should not have been commenced, Bruton would be entitled to an indemnity or exoneration for any costs it were ordered to pay in those proceedings. The assessment served on it was in its capacity as trustee. This is the liability of the trust estate itself. This created no liability of Bruton in its personal capacity. The personal liability under s 254(1) may or may not give rise to a right of exoneration, depending, at least in part, upon the propriety of Bruton's conduct in the past. 62 Most argument took place over the administrators' and liquidators' costs. It can be accepted that the trustee's right to an indemnity, by exoneration or recoupment, is not lost upon vacation of office: Glazier Holdings Pty Ltd (in Liqu) v Australian Men's Health Pty Ltd (in Liqu) [2006] NSWSC 1240 (White J) at [38] and the cases there cited. As White J discussed in Glazier Holdings at [42] and [43], referring to what was said in Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99 at 110, the conclusion that expenses of liquidation of a company that was a trustee were debts of the company incurred in discharging the duties imposed by the trust and covered by the trustee's right of indemnity, was said in the context of a company whose only business was that of a trustee of two unit trusts. (I do not see that the cases as to these principles are limited to so-called active trading trusts. Here Bruton was a passive investor. Clause 13 of the trust deed provided for Bruton's right of exoneration.) White J also said, by reference to a number of authorities at [43] and [49]: …Other authorities make it clear that the liquidator is only entitled to recover remuneration from trust assets where the work done was in administration of the trust (Grime Carter & Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158; In re Berkeley Applegate (Investment Consultants) Ltd (in liq); Harris v Conway [1989] 1 Ch 32 at 50-51; Re Eastern Capital Futures Ltd (in liq) [1989] BCLC 371 at 375; Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-687; 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 at 385; 17 ACLC 500 at 509; Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) at [213], [217]). It follows that the only claim which the liquidator has for which the company is liable, and against which the company is entitled to be exonerated from the funds in court, is for remuneration and expenses in connection with the administration of the trust. … Work done in identifying the company's creditors and the amount of their debts would qualify as work done in administering the trusts. It also appears from the liquidator's reports that Mr Starr consented to remaining liquidator at the request of the Court in connection with the proceedings brought by Glazier. Those proceedings were brought for the purposes of attempting to identify and recover causes of action which, if realized, would have been available for the benefit of creditors and beneficiaries. Remuneration and expenses incurred by Mr Starr, or by the liquidator, in connection with the proceedings could therefore also be covered by the company's right of indemnity for the benefit of the liquidator. There may be other work which was done which would also qualify. … 63 It will be necessary to examine, with care, what the administrators and liquidators were doing and whether such remuneration was in connection with the administration of the trust, and the propriety of the amount of the fees charged. The fact that Bruton had not conducted any activities other than as the trustee of the Trust does not necessarily mean that every step in the administration and liquidation of Bruton, after it had vacated office, would give an entitlement for remuneration and expenses in connection with the administration of the Trust. 64 Given that the parties are before the Court, that through Bruton the liquidators claim a right over all the funds, and given the views expressed above, an appropriate course may be to remit the matter to a Registrar for the undertaking of an inquiry into the proper amount of fees and charges by the administrators and liquidators, and for a report to be provided by the Registrar to the Court. That process may or may not throw up further legal debate as to the right of exoneration. It would, however, clear the ground in relation to the amount of the charges made. I will give the parties an opportunity to consider the form of any such order and its foundation. Any such order would be subject to the solicitor's lien. The lien 65 There is no issue but that Piper Alderman are entitled to a lien for their fees up to 28 February 2007. 66 The primary issue is whether there is a lien after 28 February 2007 and up to this application (and henceforth) for costs in proceeding NSD 1222/2006. 67 For the reasons that I have already given, the s 260-5 notices are not effective. The cross-claim by Piper Alderman is stated to be propounded "only in the event that the challenge to the validity of the three notices issued pursuant to s 260-5 … is dismissed". 68 In these circumstances, it is strictly not necessary for the purposes of the cross-claim to deal with this issue. The form of the order for payment sought by Bruton in its originating process and the interests and arguments of the Commissioner make it, however, appropriate to say the following. 69 Piper Alderman were entitled to a lien over the funds impressed with the terms of the Trust, which had been given to them by their client, for costs and work done on behalf of the Trust, up to 28 February 2007, when their client ceased to hold office pursuant to the trust deed. That lien extended to all taxable costs, charges and expenses incurred, and not merely for those billed as at 28 February 2007. 70 The difficulty is work was done by Piper Alderman after Bruton ceased to be trustee of the Trust pursuant to the trust deed. Ms Tsekouras, counsel for Piper Alderman, founded the lien for such costs on a number of bases. First, she cited cl 10.3 of the trust deed. Secondly, she submitted that Bruton (Piper Alderman's client and principal) was the bare trustee of the fund (a proposition which the Commissioner did not contest), which had legitimately taken steps after 28 February 2007 to protect the assets of the Trust, in part by having Piper Alderman take steps to assist it. 71 I do not see the terms of clause 10.3 of the trust deed as authorizing Bruton to take steps in proceeding NSD 1222/2006. From 28 February 2007, Bruton was no longer trustee pursuant to the terms of the trust deed. The definition of "the Trust" in cl 1.2 of the trust deed does not mean that, in the teeth of cl 10.2 of the same deed, Bruton is still trustee of the Trust and in possession of the powers in the trust deed. Bruton may not be bound to transfer the funds to a new trustee unless it receives an indemnity for its tax liability, but it is not trustee holding office under and pursuant to the trust deed. At most, it is now a bare trustee. Coming with that position of bare trustee, however, are responsibilities to take care of the trust estate, by maintaining or investing it: Herdegen v Commissioner of Taxation (1988) 84 ALR 271 at 282-283. 72 Ms Tsekouras submitted that Piper Alderman's work up to 29 May 2007 was legitimately in defence of the trust estate, on the instructions of Bruton (presumably through the administrators and liquidators). The evidence reveals that all the fees rendered since 28 February 2007 ($3,648.60 on 27 March 2007, $7,378.28 (including $4,800 in counsel's fees) on 24 April 2007 and $5,466.67 on 29 May 2007) have been directed to answering and dealing with matters arising in proceeding NSD 1222/2006, to dealing with the s 260-5 notices and the position of Bruton in this context. These can all be seen as actions towards safeguarding the trust property. For this reason, I accept that the costs incurred attending to Bruton's position in proceeding NSD 1222/2006, in particular those in relation to the s 260-5 notices and in reacting to the application under s 31A of the Federal Court of Australia Act, were protective of the Trust's assets and legitimately subject to the lien. 73 Ms Tsekouras also referred me to Roam Australia Pty Ltd v Telstra Corp [1997] 980 FCA, a decision of Lehane J, in which his Honour stated that the costs of enforcing the solicitor's lien are protected by the lien. That would be undoubtedly so if (as in Roam) the party denying the lien was the client. Here, it is not the client, but the Commissioner who is contesting the lien. The question is of relevance only for the difference between party/party costs and Piper Alderman's actual costs. I do not think that the Commissioner should pay indemnity costs. I do not think that the Trust's assets should bear the difference either. Piper Alderman should receive their costs from the Commissioner and no more, and they are not entitled to a lien or charge on the Trust's assets for the balance up their actual costs. Orders and what should happen now 74 To a degree, this case may reflect a failure of my case management. As at 28 February 2007, those who advised Bruton were of the view that they could not risk running NSD 1222/2006 with $400,000. The case is one as to whether Bruton should be characterised as a charitable institution. Its activities do not appear to be in dispute. Having now had an opportunity to examine the trust deed and the evidence of the activities of Bruton, it is not entirely clear to me what the fundamental submission of the Commissioner is. For instance, in Christian Enterprises Ltd v Commissioner of Land Tax (1968) 72 SR 90, the New South Wales Court of Appeal was concerned with whether a company was a "religious society" or a "charitable institution" for land tax purposes. For reasons that it is not necessary to discuss, the company was held by the majority of the Court not to be an "institution" and so the company could not be a "charitable institution". However, the balance of the reasoning, if the company could be identified as an institution, was to the effect that the commercial purposes and activities of the company did not disentitle it from being either charitable or religious if the objects or purposes of the commercial activity were charitable, that is, in that case, to raise funds to spread the Gospel. Walsh JA at 103 expressed the view that having regard to the provisions of the objects clause and the evidence, all that was done was for the purposes of carrying out the religious objects in the memorandum. He said "for that purpose [that is the religious objects in the memorandum], but not otherwise, it may undertake commercial ventures of many kinds. But… this does not provide a reason for refusing to describe it as a religious society". 75 This is not the place to rehearse arguments in proceeding NSD 1222/2006. I only say this because I have difficulty in accepting that this Court would not be able to deal with a case about the characterisation of a company which has carried on the activities as Bruton has done, under the terms of the trust deed which Bruton was governed by, in tolerably short order and at a cost in fees that should be far less than $400,000. 76 If advisers really thought that the case would cost over $400,000, then this Court and I, as the docket judge, failed to foster an appropriate approach to the litigation. 77 The advisers of Bruton did not express to me their fears about costs and the need for a prompt and short hearing. The complexities to which I have referred have now occurred. This is most unfortunate. Further, if it be the case that $300,000.00 in fees have been incurred in the administration and liquidation of a company with debts of little more than $10,000, plus the asserted liability by the Commissioner, it may reflect serious deficiencies in everyday commercial and professional life. I say no more about that at the present. 78 I have already indicated that there should be an inquiry as to these expenses. It will be necessary for someone to be a contradictor in that inquiry. It may well be that the Commissioner is prepared to undertake that role. I also propose to notify the New South Wales Attorney-General of the proceedings as protector of charities in the State. That can be done by providing these reasons to him. If there is a legitimate basis to conclude that Bruton should have been given endorsement, it may be that the New South Wales Attorney-General has a view about the further conduct of proceeding NSD 1222/2006 or, indeed, this proceeding. 79 Then there is the further conduct of proceeding NSD 1222/2006. As I have earlier said, it does not seem to me that Bruton now has authority under the trust deed to propound this case on behalf of the Trust. I may need to be addressed further on that. It may have grounds to pursue an amended form of litigation in its own right. 80 I am anxious that further procedural complexities not bedevil this case. I am, however, not confident that that can be avoided. 81 The parties should consider whether there is any point in the continuation of the litigation in proceeding NSD 1222/2006. If there is not, Mr Albarran and his colleagues should be paid such fees as are rightfully due to them and the balance of the funds in Bruton should be given the Commissioner. If anyone, including the New South Wales Attorney-General, has a view that the public purposes involved in the charity should be vindicated that is a case which could be brought forward fairly promptly with a view to the expeditious resolution of underlying issues. 82 As I said, I do not see the difficulty with bringing the substance of the case as to whether Bruton or the Trust was a charitable institution on fairly promptly, given the evidence as to what the company has done and the terms of the trust deed under which it operated. 83 I propose to make orders today as follows: (a) A declaration that the notice dated 8 May 2007 issued by the Commissioner pursuant to s 260-5 of the TA Act to Piper Alderman, the second defendant, in relation to Bruton Holdings Pty Ltd (in liquidation) is void. (b) An order that the, Commissioner take no steps to rely upon notices dated 8 May 2007 issued by him pursuant to s 260-5 of the TA Act to 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. (c) The Commissioner pay the costs of Bruton and Piper Alderman of NSD 966/2007 to date. (d) The Commissioner notify the Attorney-General for the State of New South Wales of proceeding NSD 1222/2006 by providing him with a copy of these reasons. (e) Stand the two proceedings over to 23 November 2007 for directions at which time I will also hear the parties on further orders. 84 There is an order of the Court remaining in place as to the funds in the hands of Piper Alderman. I will hear the parties (and the New South Wales Attorney-General if he wishes to appear) on 23 November 2007 about orders of the following kind: (a) An order pursuant to s 500(3) of the Corporations Act that Piper Alderman pay to Bruton the moneys held by them subject to Piper Alderman holding in accordance with the reasons published today sums in relation to their costs other than the costs in relation to proceedings NSD 966/2007. (b) The matter be referred to a Registrar for an inquiry and a report to the Court in relation to the fees, charges and expenses of Messrs Albarran and McDonald as administrators and liquidators of the plaintiff in respect of the nature and character of the tasks undertaken for those fees, whether they were fees and expenses referable to administering the trusts, and the question as to the reasonableness of the amount of those fees. 85 There may be other orders that the parties consider appropriate. 86 I am anxious that the parties should take no step other than the consideration of these reasons which would lead to the expenditure of funds which would or might adversely effect the value of the estate. These reasons will have to be considered. Thus, the position which was held from 6 July 2007 which was agreed between the parties that there would be no further expenditure will have to be modified at least in that regard, but no further. I certify that the preceding eighty-six (86) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop. Associate: Dated: 2 November 2007 Counsel for the Applicant: Mr D R Stack Solicitor for the Applicant: Nash O'Neill Tomko Lawyers Counsel for the First Respondent: Mr A H Slater QC and Ms R L Seiden Solicitor for the First Respondent: Australian Government Solicitor Counsel for the Second Respondent: Ms A Tsekouras Solicitor for the Second Respondent: Piper Alderman Date of Hearing: 3 and 6 July 2007 Date of Judgment: 2 November 2007