Application by LGSS Pty Ltd atf Local Government Super

[2021] NSWSC 1613

Supreme Court

New South Wales

Medium Neutral Citation:

Application by LGSS Pty Ltd atf Local Government Super [2021] NSWSC 1613

Hearing dates:

1 December 2021

Decision date:

14 December 2021

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

1. The opinion, advice and direction of the Court under s 63 of the Trustee Act 1925 (NSW) that the Plaintiff would be justified in amending the trust deed of LGSS (the Fund) in the manner set out in the Draft Deed of Amendment (which is exhibited to the affidavit affirmed by Ms Donna Maree Heffernan on 12 November 2021 (Draft Deed of Amendment).

2. Order that the costs arising out of and incidental to this Summons be paid out of the assets of the Fund on the trustee basis pursuant to s 93 of the Trustee Act 1925 (NSW)

3. Pursuant to s 7 of the Court Suppression and Non-publication Orders Act 2010 (NSW) (Act), or alternatively in the Court’s inherent jurisdiction, and on the grounds referred to in s 8(1)(a), a suppression order is made prohibiting the disclosure by publication or otherwise of the Plaintiff’s Confidential Information (as defined at [189] of the reasons).

4.   Pursuant to s 12 of the Act, the suppression order in order 3 above operates until the termination of the Trust Deed constituting the Fund or further order of the Court.

5.   Pursuant to s 11 of the Act, the suppression order in order 3 above applies throughout the Commonwealth.

6.   Order that the plaintiff has leave to file copies of the plaintiff’s filed affidavits and written submissions and the Australian Prudential Regulation Authority’s written submissions with the Plaintiff’s Confidential Information redacted.

7.   Orders that applicants for non-party access, whose application for access is otherwise approved, may be given access to the redacted materials filed in accordance with order 6.

Catchwords:

EQUITY — Trusts and trustees — Judicial advice, Trustee Act 1925 (NSW), s 63

EQUITY — Trusts and trustees — Superannuation funds

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth)

Corporations Act 2001 (Cth), ss 181, 199A, 199B

Courts Suppression and Non-publication Orders Act 2010 (NSW), 7, 8, 9, 11, 12

Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth)

Financial Sector Reform (Hayne Royal Commission Response) Bill 2020

Jurisdiction of Courts (Cross-vesting) Act 1987 (ACT), s 4

Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), s 9

Superannuation Administration Act 1996 (NSW), s 127

Superannuation Industry (Supervision) Act 1993 (Cth), ss 19, 52, 56, 57

Treasury Laws Amendment (Your Future, Your Super) Act 2021 (Cth),

Trustee Act 1925 (NSW), ss 63, 81

Trustees Act 1962 (WA)

Cases Cited:

Air Jamaica Ltd v Charlton [1999] 1 WLR 1399

Application by Maritime Super Pty Ltd atf Maritime Super [2021] NSWSC 1614

APRA v Kelaher (2019) 138 ACSR 459; [2019] FCA 1521

Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; [2004] NSWSC 13

Baymill Investments Pty Ltd v Drewlock Pty Ltd [2019] VSC 827

BTA Institutional Services Australia Ltd & BNY Trust (Australia) Registry Ltd (2009) 3 ASTLR 207; [2009] NSWSC 1294

Chamberlain v Spry [2008] VSC 562

Cowan v Scargill [1985] Ch 270

Crnjanin v loos [2010] NSWSC 750

D1 v P1 [2012] NSWCA 314

Fairfax Digital Australia and New Zealand Pty Ltd v Ibrahim (2012) 83 NSWLR 52; (2012) NSWCCA 125

Hancock v Rinehart (2015) 106 ACSR 207; [2015] NSWSC 646

Hogan v Australian Crime Commission (2010) 240 CLR 651; [2010] HCA 21

Hogan v Hinch (2011) 243 CLR 506; [2011] HCA 4

In re Duke of Norfolk’s Settlement Trusts [1982] Ch 61

Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd (2006) 15 VR 87; [2006] VSC 112

John Fairfax & Sons Pty Ltd v Police Tribunal of New South Wales (1986) 5 NSWLR 465

Kimberley Mineral Holdings Ltd (In Liq) v McEwan [1980] 1 NSWLR 210

Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42

Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198

Marshall v Holloway (1820) 2 Swan 432

McKinnon v Samuels [2000] VSC 393

Nissen v Grunden (1912) 14 CLR 297; [1912] HCA 35;

Re Application of NSW Trustee & Guardian [2014] NSWSC 423

Re Application of Perpetual Trustee Co Ltd [2003] NSWSC 1185

Re Application of Rinehart (2020) 104 NSWLR 274; [2020] NSWSC 1624

Re Care Super Pty Ltd (in its capacity as trustee of Care Super) [2021] VSC 805

Re Courage Pension Schemes [1986] 1 WLR 495

Re Creditors’ Trust of Jackgreen International Pty Ltd [2011] NSWSC 748

Re Cuesuper Pty Ltd [2009] NSWSC 981

Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367

Re Dion Investments Pty Ltd [2013] NSWSC 1941

Re Dion Investments Pty Ltd [2020] NSWSC 1661

Re Freeman’s Settlement (1887) 37 Ch D 148

Re French Protestant Hospital [1951] Ch 567

Re HEST Australia Ltd [2021] VSC 809

Re Perpetual Investment Management Ltd [2011] NSWSC 133

Re Perpetual Investment Management Ltd [2014] NSWSC 784

Re QSuper Board [2021] QSC 276

Re Queensland Coal and Oil Shale Mining Industry (Superannuation) Ltd [1999] 2 Qd R 524

Re Reevie and Montreal Trust Co of Canada (1984) 46 OR (2d) 667

Re Retail Employees Superannuation Trust Pty Ltd [2013] NSWSC 1681

Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294

Riddle v Riddle (1952) 85 CLR 202; [1952] HCA 12

Robinson v Pett (1734) 3 P Wms 249; (1734) 24 ER 1049

Telstra Corp Ltd v NBN Co Ltd [2014] NSWSC 940

Trustee Solutions v Dubery [2006] EWHC 1426 (Ch)

Walker Morris Trustees Ltd v Masterton [2009] EWHC 1955 (Ch)

Texts Cited:

JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths)

Report of the Australian Law Reform Commission and the Companies and Securities Advisory Committee, Collective Investments: Superannuation (1992)

Category:

Principal judgment

Parties:

LGSS Pty Ltd atf Local Government Super (Plaintiff)

Representation:

Counsel:
HK Insall SC with TM Rogan

Solicitors:
Allens (Plaintiff)

File Number(s):

2021/00326965

Publication restriction:

Nil

Judgment

1. HER HONOUR: Before me for hearing on 1 December 2021 was an application by the plaintiff (LGSS Pty Ltd), to which I will refer as the Trustee, for judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) (Trustee Act) to the effect that the Trustee is justified in amending its trust deed to charge a fee for acting as trustee. The application is similar to that brought this year in the Supreme Court of Queensland before Kelly J in Re QSuper Board [2021] QSC 276 (Re QSuper), to which I will refer in due course, and to similar applications brought both in this Court (see Application by Maritime Super Pty Ltd atf Maritime Super [2021] NSWSC 1614 (Maritime Super), which is also being published today) and in the Supreme Court of Victoria (see Re Care Super Pty Ltd (in its capacity as trustee of Care Super) [2021] VSC 805 (Re Care Super) per Lyons J and Re HEST Australia Ltd [2021] VSC 809 (Re HEST Australia) per Button J).

2. The application arises as a consequence of certain legislative changes relating to the indemnification of trustees, and directors of trustees, of superannuation funds, which will become operative on 1 January 2022 (hence the urgency with which this matter was listed and heard). Those changes have caused concerns as to the exposure of the Trustee and its directors to personal liabilities, including pecuniary penalties which might be imposed upon them in the course of their duties, which in turn gives rise to potential disadvantages for members in terms of the potential insolvency of the Trustee (as I explain in due course).

3. In both Re QSuper and Re HEST Australia, it was held that the trustee of similar superannuation funds was justified in consenting to an amendment to its trust deed in order to allow the trustee to charge a fee in very similar circumstances to the present case. For essentially the same reasons as those articulated by Kelly J in Re QSuper and endorsed and applied by Button J in Re HEST Australia, I have concluded that the advice sought by the Trustee in the present case should be given.

4. Although the Australian Prudential Regulation Authority (APRA) did not formally appear at the hearing of the judicial advice application, APRA subsequently filed submissions, as amicus curiae, to identify matters to which it, quite properly, considers the Court ought have regard in determining the present application. (APRA has appeared as amicus curiae on the applications heard by Kelly and Button JJ and in the Maritime Super proceeding and has made similar submissions on the last of those applications to the submissions here made; not surprisingly it has taken a consistent position in relation to this application.) I have taken APRA’s submissions into account in preparing these reasons; as well as the Trustee’s submissions in reply thereto and its supplementary submissions.

5. There was a large amount of material tendered on the present application that the Trustee identified as confidential and commercially sensitive as well as confidential submissions. I am satisfied that it is in the interests of justice that confidentiality orders should be made under the Court Suppression and Non-publication Orders Act 2010 (NSW) (Suppression Orders Act ) (as I set out below). Accordingly, these reasons will not refer expressly to the content of that confidential material (though it has been taken into account and will be retained on the Court file subject to confidentiality orders). Given the limited time available, these reasons will be brief. I note that I have been greatly assisted in this regard by the Trustee’s comprehensive written submissions as well as the submissions from APRA.

Introduction

6. The Trustee is a company registered in New South Wales and is the trustee of Local Government Super (Fund) which operates under the name Active Super. The Fund was established under a trust deed dated 30 June 1997 (Trust Deed).

7. The Trustee has resolved to amend the Trust Deed to insert a specific power to charge a fee out of the Fund. As adverted to above, that decision has been taken because of the significant changes which have occurred in recent years in the legal, regulatory and enforcement environment in which the Trustee operates. The proposed amendment will have the effect of providing the Trustee with funds to be utilised to build up a pool of personal capital for the purpose of reducing the exposure of the Trustee and the directors of the Trustee for personal liabilities, including pecuniary penalties imposed upon them in the course of their duties. The Trustee considers that it is in the best financial interests of members of the Fund that it amend the Trust Deed in this way.

8. Since a conflict or apparent conflict may be said to arise (between the Trustee’s and the directors’ interests, on the one hand, and their duty to, and/or the interests of, members of the Fund, on the other) in respect of the proposed amendment, the Trustee seeks judicial advice as to whether it is justified in amending the Trust Deed in the manner contemplated.

9. The proposed amendments to the Trust Deed are set out in a draft Deed of Amendment annexed to the Statement of Facts relied upon by the Trustee on the present application (Draft Deed of Amendment).

10. The Statement of Facts is supported by affidavits sworn on 16 and 23 November 2021, respectively, by the deputy chief executive officer and company secretary of the Trustee, Ms Donna Marie Heffernan. The first of those affidavits exhibits a substantial body of material which demonstrates the extent of the work undertaken and the care exercised by the Trustee in coming to its conclusion that it is in the best financial interests of members to amend the Trust Deed in the manner contemplated. The second is a confidential affidavit (in respect of which confidentiality orders are sought).

11. The Trustee’s primary application is for judicial advice. However, the Trustee has brought an alternative claim for relief under the statutory expediency jurisdiction (s 81 of the Trustee Act) or the Court’s inherent jurisdiction (in the event that this be necessary) and, because this alternative claim may be affected by views formed on the judicial advice application, the Trustee seeks the opportunity to make further submissions concerning the alternative claims if and when the need arises.

Confidentiality

12. As adverted to above, a significant amount of the material relied upon in this application is material which the Trustee has identified as confidential and commercially sensitive. Separate submissions were made by the Trustee, identifying the material in respect of which confidentiality orders are sought and the basis for such orders. I consider those in due course. Suffice it at this stage to note that the Trustee also maintains a claim to legal professional privilege over all privileged material.

Background

The Fund

13. As noted above, the Fund was established in 1997. It was formerly known as the Local Government Superannuation Scheme (LGSS). LGSS was a successor fund to a series of early funds (as set out in Ms Heffernan’s first affidavit).

14. The Fund is a regulated superannuation fund and a registrable superannuation entity within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act).

15. As at 30 June 2021, there were over 79,056 members of the Fund; and the net assets of the Fund comprised over approximately $13.6 billion. Active Super provides retirement, death or disablement benefits for its members, who are (generally speaking) people employed in the local government sector. However, it is now a public offer fund.

16. Active Super was established by the then Treasurer under s 127 of the Superannuation Administration Act 1996 (NSW), which authorised the Treasurer to approve the preparation of a trust deed for a superannuation scheme for the benefit of certain classes of State public sector employees. Section 127(5) required that “the trust deed must be consistent with the requirements of [the SIS Act] for a regulated fund within the meaning of that Act” and stipulated that “any trustee must satisfy the requirements of [the SIS Act] for a trustee”.

17. There are six Divisions in Active Super, each with its own Rules. For example, Division B (also known as the Retirement Scheme) has the Rules set out in Schedule 2 to the Trust Deed. Each Division relates to a particular category of the beneficiaries of the Fund. Under cl 3.8 of the Trust Deed, the beneficiaries of the Fund are entitled to have the assets held by their Division applied in accordance with the Rules. The assets consist of: the small amount settled under the Trust Deed; assets transferred to LGSS on 1 July 1997 from earlier schemes; subsequent contributions made by “Employee Contributors’ and ‘Employers” under the Rules; and investment earnings.

18. The Rules for the Divisions comprising accumulation schemes are to the effect that the beneficiaries are entitled to be paid a superannuation amount equal to the balance held in the individual beneficiary’s “Member’s Benefits Account”.

19. Divisions B to D inclusive are defined benefit schemes (though Division B provides for both defined benefits and accumulation benefits). The Rules for these Divisions have the effect that the beneficiaries are entitled to be paid a superannuation benefit calculated by reference to formulae described in the respective Rules of the Divisions.

20. The Trustee notes that, essentially, the defined benefit schemes are closed. Clause 3.10 of the Trust Deed provides that new beneficiaries may not be admitted to Divisions B to D inclusive, except in limited circumstances relating to mobility and government-initiated transfers. The Trustee says that mobility and transfers are relatively small in number and, accordingly, the number of beneficiaries in these Divisions has decreased over time.

The Trustee

21. The Trustee is a limited liability proprietary company. Pursuant to cl 1.2 of its Constitution, the company was formed for the purpose of acting as the trustee of a regulated superannuation fund within the meaning of s 19 of the SIS Act. While the Constitution contemplates that the Trustee “may also act as the trustee of other trusts” (see cl 1.2), the Trustee’s evidence is that it does not do so and it has never done so.

22. The Trustee currently has eight shares on issue, those being four “Employer Class Shares” (held by Local Government NSW (LGNSW), the peak body for NSW councils; see cl 2.2 of the Constitution) and four “Member Class Shares” (held by individuals for, or who are otherwise representatives of, the United Services Union (USU), the Local Government Engineers’ Association of NSW (LGEA) and the Development and Environmental Professionals’ Association (DEPA); see cl 2.3 of the Constitution).

23. The Trustee is subject to the equal representation provisions of the SIS Act, which require that the Trustee have an equal number of employer representative directors and member representative directors.

24. Pursuant to the Constitution, the board of directors of the Trustee must comprise: one-third independent directors, one-third member-representative directors (nominated by shareholders representing the USU, the LGEA and the DEPA), and one-third employer representative directors (nominated by LGNSW).

25. The Trustee’s Constitution contains limitations on the entitlements of the shareholders (reflecting that the Fund operates on a profit-to-member model, rather than to generate profit for shareholders), including that: the directors are prohibited from declaring or determining a dividend or applying any portion of the Trustee’s capital or income to be paid or transferred, directly or indirectly, in any way to a shareholder (cl 21.1); and, in the event that the Trustee is wound up, any assets remaining after the satisfaction of the Trustee’s debts and liabilities must not be paid or distributed among shareholders (cl 22.1).

Trustee Remuneration

26. The Trust Deed provides for recovery of the Trustee’s costs from the Fund, and includes among recoverable costs remuneration of the Trustee’s directors, as follows:

4.5    Remuneration

(a)   The Trustee may be reimbursed from the Fund for:

(1)   all reasonable expenses incurred by it in carrying out its duties in relation to the Fund; and

(2)    remuneration paid by the Trustee to a director of the Trustee.

(b)    The quantum of the amount payable to the Trustee must be reviewed at reasonable intervals and, in any event, at least once every two years with directors’ fees determined in accordance with the Trustee’s constitution.

27. The Trust Deed further provides that:

6.7 Expenses

The Trustee shall pay out of the Pool B all expenses of or incidental to the establishment of the Fund. The Trustee shall pay out of the Fund all expenses of and incidental to the management and administration of the Fund, including any insurance premiums in relation to the Fund or the directors of the Trustee in the discharge of their duties as directors of the Trustee and shall allocate those payments as between the Accumulation Divisions and the Defined Benefit Divisions in a fair and equitable manner as determined by the Trustee.

28. The Trustee has a right of indemnity out of the Fund in the following terms:

9.2 Indemnity

Subject to Superannuation Law, the Trustee and each director of the Trustee shall be indemnified by the Fund in respect of any liability incurred while acting as the Trustee or as director of the Trustee (as the case may be) except where the liability arises from a breach of trust where the Trustee or director:

(a)   fails to act honestly in a matter concerning the Fund;

(b)   intentionally or recklessly fails to exercise, in relation to a matter affecting the Fund, the degree of care and diligence required to be exercised,

or the liability is for a monetary penalty under a civil penalty order imposed under Superannuation Law. The indemnity shall extend to all legal and other costs, charges and expenses of administering or winding up the Fund and otherwise of performing any trusts, powers, authorities and discretions under this Deed. The indemnity provided to the Trustee and the directors of the Trustee under this clause shall be in addition to any other indemnity allowed by law or given under this Deed.

29. The Trustee does not currently receive remuneration, as such, for the services it provides to the Fund as trustee. The Trustee’s current practice for meeting its expenses of administering the Fund is that all costs and expenses are paid out of the Fund pursuant to cl 6.7, save that directors’ remuneration is paid out of the Fund pursuant to cl 4.5 and expenses that are known but not yet incurred are paid pursuant to cl 16.5.

Fees and reserves

30. Fees levied upon members include administration fees, and investment fees.

31. As to administration fees, members pay a flat rate annual fee of $66.04, together with a fee of 0.24% of the member’s account balance (for the accumulation and transition to retirement products) or 0.25% of the member’s account balance (for the standard account-based pension product). Administration fees are deducted from members’ accounts.

32. As to investment fees, these vary over time and depend on the member’s investment choices. For example, the investment fee payable by a member invested under the Fund’s MySuper option for the financial year ended 30 June 2021 was 0.80% - 0.93% of the member’s account balance per annum, depending on the member’s life stage (since the Trustee’s MySuper investment options vary by the member’s life stage) with these figures including estimated performance fees of between 0.23% and 0.29%. For that product, transactional and operational costs currently range from 0.07% - 0.08%. Investment fees are deducted from investment returns before unit prices are determined^.

33. The Fund maintains various reserve accounts. The purpose of the reserves is generally to provide pools of funds to meet operational and administrative costs of the Fund.

34. The operational risk reserve is maintained in accordance with the requirements of APRA Prudential Standard SPS 114, which applies to all APRA-regulated funds. It preserves a pool of funds equivalent to around 0.25% of funds under management from which the Fund can meet operational contingencies.

35. The administration reserve holds any excess funds levied to members to meet costs and expenses over actual costs and expenses.

36. As at 30 June 2021, the net asset position of the Fund was a surplus of approximately $296 million.

Changes to the regulatory and enforcement environment

37. As adverted to above, in recent years there have been significant changes to the regulatory environment in which the Trustee administers the Fund, which the Trustee says have made the Trustee’s discharge of its obligations as trustee of the Fund more onerous. Those changes include: an expansion and elaboration of the regulatory obligations of superannuation trustees; an increase in penalties for non-compliance with those obligations; and an intensification of regulatory scrutiny and enforcement of superannuation trustees’ conduct.

38. Most recently, the SIS Act has been amended so as to limit the Trustee’s capacity to be indemnified out of the Fund for liabilities incurred in its capacity as trustee of the Fund. Those amendments will take effect on 1 January 2022. From that date, the Trustee will be personally liable for any to penalties imposed on it for non-compliance with a wide variety of obligations imposed upon it by Commonwealth law (many of them obligations of strict liability).

39. As noted at [27] of Re QSuper, the amendments to ss 56(2) and 57(2) of the SIS Act were as follows:

Section 56(2): A provision in the governing rules of a superannuation entity is void in so far as it would have the effect of exempting a trustee of the entity from, or indemnifying a trustee of the entity against:

(a)   liability for breach of trust if the trustee:

(i)   fails to act honestly in a matter concerning the entity; or

(ii)   intentionally or recklessly fails to exercise, in relation to a matter affecting the entity, the degree of care and diligence that the trustee was required to exercise; or

(b)   liability for a monetary penalty under a civil penalty order an amount of a criminal, civil or administrative penalty incurred by the trustee of the entity in relation to a contravention of a law of the Commonwealth (including this Act); or

(c)   the payment of any amount payable under an infringement notice (however described) given under a law of the Commonwealth (including this Act); or

(d)   liability for the costs of undertaking a course of education in compliance with an education direction (within the meaning of this Act).; or

(e)   liability for an administrative penalty imposed by section 166.

Section 57(2): A provision of the governing rules of a superannuation entity is void in so far as it would have the effect of indemnifying a director of the trustee against:

(a)   a liability that arises because of the director:

(i)   fails to act honestly in a matter concerning the entity; or

(ii)   intentionally or recklessly fails to exercise, in relation to a matter affecting the entity, the degree of care and diligence that the director is required to exercise; or

(b)   liability for a monetary penalty under a civil penalty order an amount of a criminal, civil or administrative penalty incurred by the trustee of the entity in relation to a contravention of a law of the Commonwealth (including this Act); or

(c)   the payment of any amount payable under an infringement notice (however described) given under a law of the Commonwealth (including this Act); or

(d)   liability for the costs of undertaking a course of education in compliance with an education direction (within the meaning of this Act).; or

(e)   liability for an administrative penalty imposed by section 166.”

[marking up added]

40. As Kelly J further noted in Re QSuper at [28], the amendments to ss 56(2) and 57(2) were discussed in the explanatory memorandum to the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 as follows:

Extending the SIS Act indemnification prohibitions

9.164 Sections 56 and 57 of the SIS Act currently operate to prevent a superannuation trustee or a director of a superannuation trustee from using trust assets to pay a penalty that they incurred for liabilities arising from breach of trust in certain circumstances or the contravention of certain provisions and types of provisions under the SIS Act.

9.165 In view of the extension of the Australian financial services licensing regime to cover the provision of a superannuation trustee service, Schedule 9 also extends the existing indemnification prohibition. Specifically, sections 56 and 57 of the SIS Act now prevent trustees and directors from using trust assets to pay a criminal, civil or administrative penalty incurred in relation to a contravention of a Commonwealth law.

[Schedule 9, items 63 and 64, sections 56(2) and 57(2) of the SIS Act]

9.166 This means that a superannuation trustee or a director of a superannuation trustee cannot use trust assets to pay a penalty that they incur for the contravention of a provision of the Corporations Act or ASIC Act.

9.167   An application provision clarifies that these amendments apply in relation to liabilities imposed on or after this Schedule’s commencement date.

…

9.168 Note that a contravention of a state or territory law, depending on the circumstances, may amount to a breach of trust within the meaning of sections 56 and 57 of the SIS Act. Such a law would prevent a trustee or director using trust assets to pay a penalty for such a contravention if they fail to act honestly, or intentionally or recklessly fail to exercise the requisite care and diligence, as set out in those sections.

41. The Trustee considers that, in view of the changes to its operating environment described above (and having regard to the matters referred to below) it is prudent and in the best financial interests of members to introduce a fee to compensate the Trustee for acting as trustee of the Fund and the services it performs as such. In particular, the Trustee considers that the significant compliance and other risks associated with performing the role of trustee render it commercially unreasonable to expect the Trustee to act as trustee of the Fund without remuneration. It says that the impact of the proposed Trustee Fee upon members is fair and equitable as between different groups of members.

42. The Trustee is of the view that it would be beneficial to members of the Fund if the Trustee could build up a fund of personal capital in order to mitigate the risks of the insolvency of the Trustee together with: (i) the risk that the Fund (and thus members) may incur the costs which would be imposed upon it (and them) in the event that the Trustee became insolvent and could not continue as Trustee of the Fund (which costs the Trustee has estimated on various insolvency scenarios – as per confidential submissions); and (ii) the risk that appropriately skilled individuals could not be attracted to act as directors of the Trustee, with commensurate effects upon the administration of the Fund.

43. It is noted that if the Trustee determined that it could no longer act as trustee of the Fund without appropriate measures in place to address its personal financial risks, the Trustee would be required to transfer its members to another fund where, in all likelihood, a fee would be paid to the trustee of that fund in one form or another given other trustees would be facing the same personal financial risks. Further, it is said that, in the event that the Trustee became insolvent such that a successor fund transfer became necessary, participating employers might cease to be obliged to make contributions to fund liabilities associated with the defined benefit section of the Fund.

44. The Trustee notes that the proposed remuneration power would be subject to limits to ensure that the fee levied remained no higher than what the Trustee considers to be a fair and reasonable rate of remuneration for the services it provides.

45. The proposed amendment to the Trust Deed would empower the Trustee to impose a Trustee Fee in an amount equivalent to up to 0.04% per annum of the net assets of the fund (Annual Limit). In addition to the Annual Limit to the amount of the Trustee Fee that could be charged, the power to levy a Trustee Fee would be subject to a cap on the amount of personal capital the Trustee could accumulate out of the proceeds of the Trustee Fee (Cap on Target Capital). The Cap on Target Capital is to be set initially at an amount equal to 0.08% of the net assets of the fund or such other maximum amount (if any) of Trustee capital as the applicable law requires or a regulator permits, recommends, requests or directs the Trustee to hold. Once the Cap on Target Capital is reached, for as long and to the extent that the amount of Trustee Capital held does not drop below that amount, the power to levy the Trustee Fee would be suspended.

46. The Annual Limit and the Cap on Target Capital have been set by reference to the Trustee’s assessment of what level of remuneration compensates the Trustee for the risks of personal liability which it assumes in and through providing services as Trustee to the Fund.

47. The Trustee has calculated a reasonable rate of remuneration for the risks of personal liability assumed by the Trustee using modelling it developed with the assistance of Pricewaterhouse Coopers (PwC). The details of the Trustee’s modelling are set out in the Report on Trustee Capital and Fee. The Trustee has submitted the modelling conducted to external validation.

48. The Annual Limit and Cap on Target Capital would be subject to review every three years. The Trustee would be required to amend the Annual and the Cap on Target Capital to accord with the outcome of each such review.

49. The Trustee Capital would be held by the Trustee solely for the purpose of enabling the Trustee to discharge its duties as Trustee of the Fund. The Trustee’s Constitution provides that no dividends or return of capital can be paid to shareholders, and that any capital held by the Trustee cannot be returned to shareholders in a winding up, which provision can only be modified with the agreement of all directors of the Trustee.

Power and restrictions on power to amend

50. The Trustee has express power to amend the Trust Deed by a deed executed by the Trustee (cl 20.1). Clause 20.1 provides that the Trustee’s power of amendment is conditional upon the Treasurer of NSW consenting to any amendment, and the amendment complies with sub-cll 20.2 (concerning reduction of benefits) and 20.4 (precluding amendment to permit a natural person to become trustee).

51. Relevantly, cl 20.5 provides that “subject to clause 20.7” (which enumerates a number of clauses which may not be amended by this means), the Trustee may in its absolute discretion “exercise its powers in clause 20.1 without requiring the consent of the Minister [i.e., the Treasurer], to amend, add to, delete or to replace all or any of the provisions that apply to the Deed or the Accumulation Divisions of the Fund (other than an amendment, addition, deletion or replacement provision which would provide for Defined Benefits)”. Clause 20.6 provides a cognate power to amend “all or any of the provisions that apply to the Defined Benefit Divisions of the Fund” other than an amendment “which would improve any Defined Benefit”.

52. Clauses 20.5 and 20.6 were inserted through previous exercises of the amendment power in cl 20.1 (first, an earlier version of cl 20.5 was introduced; then cl 20.5 was disaggregated into cll 20.5, 20.6 and 20.7 – both of which sets of amendments being made with the Treasurer’s consent).

53. Subsequently, a restructuring of the Fund, including a successor fund transfer from one part of LGSS to another, led to a further deed of amendment, in effect, replacing references to “Pool A” and “Pool B” with references to the Accumulation Division and the Defined Benefit Division respectively. The Trustee notes that these amendments did not require ministerial consent.

54. The Trustee does not consider that the Treasurer’s consent to the proposed amendments is required (and has not sought that consent).

Stakeholder Notification

55. The Trustee has notified APRA as to the nature of the proposed amendment to the Trust Deed, the reasons for it and the basis of the Trustee’s determination that the amendment is in the best interests of members of the Fund; and provided APRA with a copy of this application and the material filed in support. As noted above, after the hearing of the application APRA filed submissions in relation to the Trustee’s application.

56. The Trustee has also notified representative of each sponsoring organisation (i.e. USU, LGEA, DEPA and LGNSW) of the proposed amendment; and each has indicated that it supports the proposal. The Trustee has not served the application seeking judicial advice on the members. It says that this approach is consistent with s 63(4) of the Trustee Act and submits that service of the application is not warranted where: the directors include member representative directors that are nominated by organisations representing the interests of members of the Fund; the directors have approved this application, and hence it can be taken that representatives of members of the Fund are aware of the application; each of the four sponsoring organisations of the Trustee (being organisations representing the interests of members and employers) has confirmed it is in support of the application; there are over 79,000 members in the Fund and it can be assumed that giving notice to members would involve prohibitive costs and lead to substantial delay; and APRA has been served with the application.

57. In this regard, it is said that the position is very similar to the position which prevailed in Re Queensland Coal and Oil Shale Mining Industry (Superannuation) Ltd [1999] 2 Qd R 524 (Queensland Coal and Oil Shale Mining Industry) (an application under the Queensland equivalent of s 81 and the inherent jurisdiction), Re Cuesuper Pty Ltd [2009] NSWSC 981 (Re Cuesuper) and Re Retail Employees Superannuation Trust Pty Ltd [2013] NSWSC 1681 (Re Retail Employees Superannuation Trust), where in each case the Court did not require service on the members. Reference is made to what was said by Palmer J in Re Cuesuper at [8]-[10]; and it is noted that a similar approach was adopted in Re QSuper (see at [17]).

58. That said, the Trustee intends to notify members of the amendments to the Trust Deed once this application has been determined in accordance with the requirements under the Corporations Act 2001 (Cth).

59. The Trustee has notified the Treasurer of NSW of the proposal.

Application for judicial advice

60. As noted above, the Trustee has formed the view that making the proposed amendments to the Trust Deed is in its members’ best financial interests. However, the Trustee and its directors recognise that they may have a conflict of interest in making the amendments, in that the amendments will permit the Trustee to acquire a financial benefit (and thereby reduce the Trustee’s personal liability, and enable the Trustee to indemnify the directors for personal liabilities), which it is accepted would be at some indirect cost to members. Hence the present application for judicial advice.

61. As to the jurisdiction for the giving of such advice, it is noted that the Trustee is resident and administered in New South Wales; and is a company registered in New South Wales with its registered office and principal place of business in New South Wales. The original Trust Deed provided in cl 27.2 that the Trust Deed was governed by the laws of New South Wales.

62. An amending deed (Amendment No 33) contained a provision that cl 27.2 was to be replaced by a new clause 27.2 in Schedule 1 (to the effect that the Trust Deed was governed by the law of the Australian Capital Territory) and also provided:

4    COMMENCEMENT

4.1    The amendments in Schedule 1 take effect from a date after the date of this deed.

63. The date of the amending deed was 24 May 2011. There is no evidence of any subsequent determination by the Trustee of the date on which the amending deed was to become operative, nor any subsequent act of the Trustee which ratified the amendment in Deed of Amendment No 33 or embodied that amendment in a subsequent consolidated deed.

64. The Trustee contrasts the wording of cl 4.1 of Deed of Amendment No 33 with the wording of previous amendments. Clause 2 of the Deed of Amendment No 26, for example, provided that the amendments there identified “will commence on the date of this Deed”. The equivalent clauses in Deeds of Amendment Nos 27 and 28 provided that the identified amendments “take effect” on a date there specified. Clause 2 of Deed of Amendment No 29 provided that:

Commencement of Provisions

2    The amendments numbered 1 and 2 in Schedule 1 take effect on 25 October 2006 and the amendment numbered 3 in Schedule 1 will take effect from the date of execution of this Amendment.

65. Similarly, cl 3 of Deed of Amendment No 30 provided that:

3    Commencement of provisions

3.1    The amendments in Schedule 1 take effect on the date of this deed.

3.2    The amendments in Schedules 2 and 3 take effect on 1 December 2008 or on such later date as is determined by the Trustee.

66. Clauses 4 of the respective Deeds of Amendment Nos 31 and 32 provided in similar terms that the amendments there identified “take effect from a date after the date of this deed is approved of by the Minister as determined by the Trustee”.

67. Clause 4 of Deed of Amendment No 34 provided that the amendments there specified “take effect from the day following the execution of this deed”.

68. Deed of Amendment No 33 therefore differs from the other deeds of amendment referred to above in that it does not in terms make clear when the amendments were to come into effect. The Trustee submits (while recognising that there may be some scope for argument on this issue) that the amendments in Deed of Amendment No 33 have not yet come into effect and, therefore, the original cl 27.2 remains in force and the Trust Deed remains governed by the law of New South Wales. (On the evidence before me I accept that this appears to be the case, there being no evidence of any determination by the Trustee of the date from which the amendment was to come into force.)

66. In any event, the Trustee says that, even if the Trust Deed is now governed by the laws of the Australian Capital Territory, this Court has jurisdiction to provide the judicial advice (citing Re Application of Rinehart (2020) 104 NSWLR 274; [2020] NSWSC 1624 (Re Application of Rinehart) at [94] per Parker J). Reference is made to cases in which it has been held that this Court may give judicial advice under s 63 of the Trustee Act in respect of foreign trusts (the Trustee citing, by way of example, BTA Institutional Services Australia Ltd & BNY Trust (Australia) Registry Ltd (2009) 3 ASTLR 207; [2009] NSWSC 1294 and Re Dion Investments Pty Ltd [2013] NSWSC 1941).

67. It is noted that in Re Application of Rinehart, Parker J (without deciding the question) considered that there was room for argument as to whether s 63 applied to foreign trusts (see at [111]). His Honour there held that where, on any view, this Court had power under interstate legislation (in that case, the Trustees Act 1962 (WA)) and the inherent jurisdiction, the Court should exercise jurisdiction under the interstate legislation rather than s 63 of the Trustee Act.

68. The Trustee here submits that it would be appropriate to proceed under s 63 of the Trustee Act but, out of an abundance of caution, also to make the order under s 63 of the equivalent Australian Capital Territory Act, the terms of those statutory provisions being relevantly identical. It is noted that this Court has jurisdiction to provide advice under s 63 of the Australian Capital Territory Act by virtue of s 4(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (ACT) and s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) (see Re Application of Rinehart at [36], [112]).

69. The Trustee further notes that, under both s 63(4) of the Australian Capital Territory Act and s 63(4) of the New South Wales Act, the beneficiaries need not be joined as parties to the proceedings.

70. As to the breadth of the jurisdiction under s 63, the Trustee refers to Baymill Investments Pty Ltd v Drewlock Pty Ltd [2019] VSC 827 (Baymill) where Sloss J noted (at [75]) that the equivalent Victorian provision conferred on the Court the power to give directions to trustees and reflected the long-standing practice that “[w]here an executor or trustee is in doubt as to the course of action it should adopt, it is always entitled to take the opinion of the court as to what it should do”. In Re Perpetual Investment Management Ltd [2011] NSWSC 133 (at [46]) it was said that s 63 is beneficial legislation for the protection of trustees and should not be narrowly construed.

71. The Trustee notes that the only jurisdictional bar to the exercise of the power is the requirement that there be a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument (see Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (Macedonian Church) at [58]; Baymill at [76]).

72. Further, it is noted that the procedure does not involve proving facts according to a certain standard of proof to enable findings to be made as would be the case in adversarial litigation (Crnjanin v Ioos [2010] NSWSC 750 at [28]) and that it has been said that the primary function of the legislation is to facilitate the provision of “private advice” to the trustee (Macedonian Church at [64]-[65]).

73. The Trustee points out that it is not the function of the court to take over the exercise of the trustee’s discretion or assess the wisdom of the trustee’s decision (citing McKinnon v Samuels [2000] VSC 393 at [14]); nor to order or tell the trustee what to do; rather that the order is permissive and usually expressed in the form that the trustee “is justified” in acting in a particular way (citing Re Application of NSW Trustee & Guardian [2014] NSWSC 423, at [24] which was in turn cited in Baymill at [80]). Reference is also made to what was said in Re Application of NSW Trustee & Guardian by Kunc J (at [25]-[26]).

74. It is noted that, in exercising the jurisdiction, the court “is essentially engaged solely in determining what ought to be done in the best interests of the trust estate” (see Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201, which was quoted in Macedonian Church at [104]).

75. The Trustee says, by reference to the above, that it may thus be appropriate to seek judicial advice in relation to a proposal by the trustee to amend the trust deed but that, insofar as this involves matters which are for the discretion or judgment of the trustee, the court does not express any view; rather, its role is primarily that of passing judgment upon the lawfulness of the course which the trustee is minded to pursue (citing Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd (2006) 15 VR 87; [2006] VSC 112 (Invensys) at [36]) or as to whether the proposed course of action or exercise of power is proper or within power (citing Chamberlain v Spry [2008] VSC 562 at [14]).

76. Finally, it is noted that the courts may provide judicial advice in cases of perceived or actual conflict between the trustee’s duty as trustee and its personal interest, including when exercising a power of amendment (the Trustee citing Re Cuesuper at [22]; Baymill at [83]-[90]).

Trustee’s submissions

Power to amend

80. The Trustee submits that it is entitled to amend the Trust Deed in the manner contemplated by the proposed deed of amendment, noting that a trustee may amend a trust deed pursuant to an express power and in so doing is required to exercise the power in good faith, upon a real and genuine consideration and in accordance with the purposes for which the power was conferred. It is noted that the trustee should act in a way which appears to it to be fair and equitable in the circumstances (see Invensys at [62]). It is accepted that, in exercising its power to amend, the Trustee is also required to comply with its obligations under relevant superannuation legislation, including in particular, the covenants in s 52(2)(c) and (d) of the SIS Act.

81. The Trustee points to authority for the proposition that amending powers in superannuation trust deeds are construed in a way which takes into account of the fact that such funds are intended to operate over a long period and often against a changing commercial and legislative background, referring to what was said by Millet J (as his Lordship then was) in Re Courage Pension Schemes [1986] 1 WLR 495 (Courage) at 505ff, namely that:

there are no special rules of construction applicable to a pension scheme; nevertheless, its provisions should wherever possible be construed to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life.

…

in the case of an institution of long duration and gradually changing membership like a club or pension scheme, each alteration in the rules must be tested by reference to the situation at the time of the proposed alteration, and not by reference to the original rules at its inception. By changes made gradually over a long period, alterations may be made which would not be acceptable if introduced all at once.

82. It is accepted that, where an amending power in a trust is subject to express restrictions, there must be compliance with those restrictions (see Walker Morris Trustees Ltd v Masterton [2009] EWHC 1955 (Ch) at [48]; Trustee Solutions v Dubery [2006] EWHC 1426 (Ch) at [20]; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294 at 300-301); and that the trustee cannot employ its amending power to remove those restrictions (see Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 at 1411; Courage at 505; Re Reevie and Montreal Trust Co of Canada (1984) 46 OR (2d) 667 at 673).

Exercise of the power of amendment in present case

83. The Trustee submits that the power of amendment is here proposed to be exercised in good faith, upon a real and genuine consideration, and that the power is being exercised in accordance with the purposes for which the power was conferred and in a way which is fair and equitable in the circumstances. The purpose of the exercise of the power of amendment (in the sense of “the substantial object the accomplishment of which form[s] the real ground of the [Trustee’s] action”) is here said to be to provide clarity, to provide a more focussed power and to permit the Trustee to continue to function as trustee in the face of potential risks to its solvency and, ultimately, to secure the competent administration of the Fund. The Trustee says that, absent the payment of the Trustee Fee, the Fund will potentially be exposed to the loss of the Trustee, with concomitant financial detriment (noting that any replacement trustee would likely require payment of a fee in any event; c.f., In re Duke of Norfolk’s Settlement Trusts [1982] Ch 61 (In re Duke)).

84. It is submitted that there are idiosyncrasies of the Fund in the present case which make the loss of the Trustee additionally undesirable. It is noted that the power to appoint a replacement trustee is vested in the Treasurer; and the Trustee says that the process of appointing a replacement trustee is therefore likely to be additionally cumbersome.

85. Further, emphasis is placed on the fact that participating employers’ obligations would be unlikely to survive a successor fund transfer, in circumstances where a significant number of members of the Fund are accruing defined benefit entitlements. It is said that, while those defined benefit entitlements are adequately funded as at 30 June 2021, accruals for future service are not funded and rely upon continuing contributions from the relevant participating employers. The Trustee anticipates that some affected participating employers would be reluctant to consent to a transfer and would have an interest in avoiding any further obligation to make contributions to fund defined benefit entitlements. It perceives that there is accordingly a risk that a successor fund transfer would have significantly adverse consequences for members accruing defined benefit entitlements, and potentially for members of the Fund more generally.

86. The Trustee accepts that equity has historically expected trustees to act gratuitously (pointing by way of example to Robinson v Pett (1734) 3 P Wms 249; (1734) 24 ER 1049) (in essence, a manifestation of the rule that a fiduciary must not be in a position of conflict – i.e., a position where the fiduciary’s interests conflict with its duty to, or the interests of, the beneficiary – or pursue a personal gain in a position of conflict).

87. However, the Trustee says that any conflict which may be said to arise by reason of the amendment is mitigated by the fact that the Trustee is seeking judicial advice before exercise the power (citing Hancock v Rinehart (2015) 106 ACSR 207; [2015] NSWSC 646 at [379]-[383]; Macedonian Church at [104]; and pointing to the observations of Palmer J in Re Cuesuper at [21]-[22], including the acceptance by his Honour of the adage “penny wise, pound foolish” in the context of the proposition that the failure to pay a relatively small remuneration in order to retain a professional and committed Board might result in less skilled administration of Cuesuper and a poorer return to its members). It is noted that the approach of Palmer J was followed by Darke J in Re Retail Employees Superannuation Trust (at [16]).

88. The Trustee submits that it would be not be proscribed, upon the receipt of positive judicial advice, from exercising the amendment power simply because the amendment would result in payment of a fee which may be described as “remuneration”; and that there is no overriding rule of law or equity that an amending power in a trust deed cannot be utilised to authorise payment of remuneration – rather, that every trust deed must be construed in accordance with its own terms.

89. The Trustee further submits that the decision of Dankwerts J in Re French Protestant Hospital [1951] Ch 567 does not inhibit the grant of the advice sought or the making of the proposed amendments. There, the by-laws of a charitable corporation empowered the directors to amend the by-laws, provided that the new by-laws were reasonable and not repugnant to law. On a challenge to the validity of the amendments, Dankwerts J held that an amendment of the by-laws authorising directors to charge profit costs and fees was invalid. The Trustee says that this decision provides no impediment to the Trustee exercising its power of amendment in the present case, for the following reasons.

90. First, that the amendment in Re French Protestant Hospital purported to authorise the charging of “full profit costs and fees” so that the directors “could in fact make a profit out of their office for the services rendered by them” (at 572); whereas the fee proposed by the Trustee in the present case is of a quite different character (being a fee designed to facilitate the ability of the Trustee to continue to perform its role as trustee, rather than expose itself to insolvency, the loss of the Trustee and the potential for substantial cost to members). It is noted that the proposed fee does not operate, in substance, to secure a private gain or “profit” to the Trustee in conflict with its duties to members.

91. Second, it is noted that the decision in Re French Protestant Hospital was based, in large measure, on the construction of limitations in the by-laws of a charitable corporation (whereas the amendment power in the present matter does not import comparable limitations). It is said that Dankwerts J did not hold that it was not open to a trustee, in any circumstances, to exercise an amending power to provide for its remuneration; rather, holding (at 571-2) that in the case of administering charitable trusts by the court, it had always been the practice to exclude any power on the part of the trustee to obtain a profit or remuneration and it would be a great change if it were thought proper to do so, particularly at the instance of the trustee itself. In the circumstances, Dankwerts J held (at 572.5) that it was not proper and reasonable to include such a provision in the by-laws relative to a charitable trust, that such a power was “prima facie” repugnant to law and, if it were said that it was not repugnant, that it was not reasonable to insert such a provision in trusts of the kind he had to consider in that case. Accordingly, it was held that the amendment was not “reasonable, and not repugnant to the law” as required by the by-law authorising amendments. The Trustee notes that the amendment power in the present case does not contain express restrictions of the type in Re French Protestant Hospital; and emphasises that the present case does not involve a charitable trust but, rather, a superannuation trust (where it is said that powers of remuneration are now commonplace – they certainly will be if the fate of this and similar applications is taken into account).

92. Third, the Trustee says that the proposed amendments do not in reality confer any personal advantage upon the Trustee, or upon its directors (or an advantage of a type which was not, at least implicitly, contemplated under the current deed), which is in conflict with the Trustee’s duties to members. It is said that, while the proposed amendments do confer a benefit on the Trustee and the directors by mitigating the risk of insolvency and moderating the directors’ exposure to personal liability, those benefits are incidental to the amendments’ effects upon the Fund’s administration. It is said that if the Trustee were not afforded some measure of protection from the threat of insolvency, the risk of that eventuality and the attendant disruption to the Fund’s administration and remedial expense to the Fund would be unacceptably high. The Trustee argues that if the Trustee remains unable to offer any indemnity to directors against personal liability for penalties incurred in the course of their duties, and directors remained without such an indemnity, the Fund would risk the Trustee becoming unable to attract competent directors. Further, it is submitted that the Trustee could also be expected to grow excessively risk-averse in its decision-making, potentially leading to poorer financial outcomes for members.

93. The Trustee accepts that it might be said that, by enabling the Trustee to accumulate a pool of personal capital out by levying a fee against the Fund, the proposed amendments would provide the Trustee with an income in excess of its immediate expenses for a period of years (for as long as the Trustee chose to take to accumulate enough personal capital to trigger the Cap on Target Capital) and that, in this process, the Trustee’s balance sheet would be inflated by the amount of the Cap on Target Capital. However, the Trustee says that the proposed fee does not operate, in substance, to secure a private gain or “profit” to the Trustee in conflict with its duties to members. It is noted in this context that the Trustee’s object is to serve as trustee of the Fund; that the Trustee’s board has an equal number of member representatives and employer representatives; and that the Trustee’s Constitution precludes the payment of dividends or the distribution of surplus capital among shareholders, including in a winding up.

94. The Trustee emphasises that the purpose for which the Trustee has resolved to introduce the proposed Trustee Fee (and the apparent effect of the introduction of that fee) is to promote the beneficial administration of the Fund. It is said that the regulatory context in which the Fund is now administered, interacting with the scale of the Fund’s assets and membership, renders anomalous the fact that the Trustee is not receiving any remuneration; and (as already noted) that the task of administering the Fund has grown increasingly onerous. The Trustee says that, in order to continue to discharge its obligations as trustee, the Trustee must have means of remaining solvent in the event that a penalty is imposed upon it to which neither indemnities from the Fund nor its insurance respond. It is said that the consequences of insolvency of the Trustee would be significant disruption to the administration of the Fund, and significant expense in restoring proper administration.

95. The Trustee points out that the proposed amendments do not eliminate the risks of insolvency of the Trustee (or the liability, beyond the limits of any available indemnity, of the directors). Rather, the Trustee says that the Trustee Fee and Trustee Capital (within the Annual Limit and the Cap on Target Capital, both subject to regular review to ensure the rate of remuneration remains fair and reasonable) function to mitigate the Trustee’s solvency risk and to moderate the directors’ personal exposure.

Express restrictions on amendment

96. The Trustee says that the proposed amendment does not engage any of the express restrictions on the Trustee’s power in cl 20 to amend the Trust Deed; noting, in particular, that the proposed amendment would not improve any defined benefit and does not alter cll 3.7, 4.2, 4.3, 4.5, 7.5, 7.6, 8.2, 10.2, 20.1, 22 or 23 of the Trust Deed. I agree.

SIS Act covenants

97. The Trustee submits that, in exercising the power of amendment, the Trustee will comply with its relevant statutory obligations including s 52(2)(c) of the SIS Act.

98. Reference is made to what was said by Kelly J in Re QSuper, when considering s 52(2)(c) in a context analogous to the present, namely that: a “relatively broad and practical approach should be adopted when assessing whether this type of proposed amendment is in the best financial interests of the beneficiaries” (at [36]); the court should consider “the interests of present and future beneficiaries and have regard to the commercial and practical realities of the superannuation industry generally” (at [36]); ultimately, the relevant inquiry for the court is “not whether the decision to consent to the Proposed Amendment is in the best financial interests of the members but rather whether it is reasonably justifiable on that basis” (at [36]); and “a reasonably justifiable decision is one where ‘good and sufficient reasons in support of the decision ... exist at the time the decision is made’”.

Orders

189. For those reasons I make the following orders:

1. The opinion, advice and direction of the Court under s 63 of the Trustee Act 1925 (NSW) that the Plaintiff would be justified in amending the trust deed of LGSS (the Fund) in the manner set out in the Draft Deed of Amendment (which is exhibited to the affidavit affirmed by Ms Donna Maree Heffernan on 16 November 2021 (Draft Deed of Amendment).

2. Order that the costs arising out of and incidental to this Summons be paid out of the assets of the Fund on the trustee basis pursuant to s 93 of the Trustee Act1925 (NSW)

3. Pursuant to s 7 of the Court Suppression and Non-publication Orders Act 2010 (NSW) (Act), or alternatively in the Court’s inherent jurisdiction, and on the grounds referred to in s 8(1)(a), a suppression order is made prohibiting the disclosure by publication or otherwise of the Plaintiff’s Confidential Information (as defined below).

4. Pursuant to s 12 of the Act, the suppression order in order 3 above operates until the termination of the Trust Deed constituting the Fund or further order of the Court.

5. Pursuant to s 11 of the Act, the suppression order in order 3 above applies throughout the Commonwealth.

6. Order that the plaintiff has leave to file copies of the plaintiff’s filed affidavits and written submissions and the Australian Prudential Regulation Authority’s written submissions with the Plaintiff’s Confidential Information redacted.

7. Orders that applicants for non-party access, whose application for access is otherwise approved, may be given access to the redacted materials filed in accordance with order 6.

Plaintiff’s Confidential Information means any Documents or copies of Documents which have been filed with or provided to the Court in these proceedings and/or which have been provided to, or created by, the Australian Prudential Regulation Authority in these proceedings.

Documents means documents or parts of documents which are identified in items 1 to 6 of the table at [2] of the affidavit affirmed 7 December 2021 By Ms Natalie Rita Kalouche.

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Decision last updated: 16 December 2021