In particular, the case from 2010 of Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) [2010] FCA 978 clearly explains the relevant principles.
Generally, a trustee discharging their duties will always be entitled to an indemnity for any liabilities incurred out of trust assets. The indemnity can be enforced by way of a charge or right of lien over trust assets that the trustee will have automatically at law.
Trustees must, however, show that the expenses or liabilities incurred were done so properly in the conduct of the business of the trust, including preserving and realising trust assets.
Where an entity is acting as bare trustee, their duties, powers and rights are however limited solely to protecting trust assets and then conveying them on demand from those ultimately entitled.
In Bruton, the trustee was not able to recover the costs out of trust property for running a Court case unrelated to merely protecting trust property, because at the time the liabilities were incurred (i.e. when the court proceedings took place, and the costs of the proceedings were incurred) the corporate trustee was acting as a bare trustee.
In other words, pursuant to a change of trustee document, the trustee was simply holding the trust property without any actual interest in it, pending the newly appointed trustee fully taking over management of the trust, and thus, the costs went beyond what the trustee was authorised to incur and be reimbursed for.
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** for the trainspotters, ‘Sometimes’ is a song from Stevie Nicks. View hear (sic):