Application by Maritime Super Pty Ltd atf Maritime Super

[2021] NSWSC 1614

Supreme Court

New South Wales

Medium Neutral Citation:

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

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) is that the plaintiff would be justified in amending the trust deed of Maritime Super (the Fund) in the manner set out in the Draft Deed of Amendment (which is exhibited to the affidavit affirmed by Peter Victor Robinson on 12 November 2021 (Draft Deed of Amendment).

2. Order that the plaintiff’s 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 in [225]).

4. Pursuant to s 12 of the Act, the suppression order in order 3 above operates until the termination of the Trust Deed dated 6 October 1967 constituting the Fund known as Maritime Super or further order of the Court.

5. Pursuant to s 11 of the Act, order that 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 APRA’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 above.

Catchwords:

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

EQUITY — Trusts and trustees — Superannuation funds

Legislation Cited:

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

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

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

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

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

Trustee Act 1925 (NSW), ss 63, 81, 93

Cases Cited:

Air Jamaica Ltd v Charlton [1999] 1 WLR 1399

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

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

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

Australian Securities and Investments Commission v Lewski (2018) 266 CLR 173; [2018] HCA 63

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

Chamberlain v Spry [2008] VSC 562

Cowan v Scargill [1985] Ch 270

Crnjanin v Ioos [2010] NSWSC 750

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

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

Re Courage Pension Schemes [1987] 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 [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 [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

Retail Employees Superannuation Pty Ltd v Pain (2016) 115 ACSR 1; [2016] SASC 121

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

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

Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 3 All ER 75; [1986] 1 WLR 1072

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

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

Texts Cited:

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

Category:

Principal judgment

Parties:

Maritime Super Pty Ltd atf Maritime Super (Plaintiff)

Representation:

Counsel:
HK Insall SC with TM Rogan (Plaintiff)
S Cooper with K Morris (APRA) (Amicus curiae)

Solicitors:
Allens (Plaintiff)

File Number(s):

2021/00327135

Publication restriction:

Nil

Judgment

1. HER HONOUR: Before me for hearing on 1 December 2021 (listed as a matter of some urgency for the reasons I set out below) was an application by the plaintiff, Maritime Super Pty Ltd (the Trustee), the trustee of Maritime Super (the Fund), seeking judicial advice under s 63 of the Trustee Act 1925 (NSW) (Trustee Act) to the effect that the plaintiff is justified in amending its trust deed to charge a fee for acting as trustee.

2. The application is of a similar nature to other applications presently before this Court and elsewhere. The Trustee made reference to a recent application determined by Kelly J in the Supreme Court of Queensland in the matter of Re QSuper Board [2021] QSC 276 (Re QSuper), to which I will refer in due course. Since then, similar applications have been determined 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) and have been determined or will be determined shortly in this Court (including Application by LGSS Pty Ltd atf Local Government Super [2021] NSWSC 1613).

3. The application (as also do those others of a similar nature both in this Court and elsewhere) arises as a consequence of certain legislative changes relating to the indemnification of superannuation trustees and directors of superannuation trustees, which 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 shortly).

4. In response to those significant changes in the legal, regulatory and enforcement environment in which the Trustee operates, the Trustee has formed the view that it would be in the best financial interests of members for the Trustee to commence paying itself remuneration in order 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 such potential personal liabilities.

5. On the hearing of the application for judicial advice, Counsel for the Australian Prudential Regulation Authority (APRA) appeared as amicus curiae to identify matters to which it considered the Court ought have regard in determining this application. Since the hearing written submissions have been made by both APRA and supplementary submissions by the Trustee, all of which (including various confidential submissions) I have taken into account.

6. As the Trustee considers that its decision to amend the Trust Deed (to provide it with a power to charge remuneration within what it considers to be carefully defined (and to be regularly-reviewed) parameters) may give rise to a conflict or apparent conflict between the interests of the Trustee and its directors and their duty to members of the Fund, the Trustee has brought the present application for judicial advice as to whether it is justified in amending the Trust Deed in the manner contemplated. Nevertheless, although the Trustee’s primary application is for judicial advice, the Trustee has also brought an alternative claim for relief under the statutory expediency jurisdiction or the inherent jurisdiction (albeit one which it considers not necessary to pursue if the Court accedes to its application for judicial advice).

7. I note at the outset that there was a large amount of material tendered on the present application which the Trustee has identified as confidential and commercially sensitive material, and confidential submissions have been filed both on behalf of the Trustee and by APRA. 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) or in the alternative that such orders should be made in the inherent jurisdiction of the Court. 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 the confidentiality orders). Further, given the limited time available, these reasons will be brief. I note that I have been greatly assisted in this regard by the comprehensive submissions filed by the Trustee and by the written submissions from APRA, as well as the oral submissions.

8. On the present application, the Trustee relied upon a Statement of Facts, together with an affidavit affirmed 12 November 2021 by its chief executive officer, Mr Peter Victor Robertson, and an affidavit affirmed 16 November 2021 by its incoming chairperson, Ms Lynelle Jann Briggs AO. The Trustee has obtained legal and financial advice as to the proposed amendments and as to the financial modelling of the proposed charges.

Factual Background

9. The factual background set out below is drawn from the material before me, as outlined in the Trustee’s submissions. As noted, I do not make explicit reference to any of the material over which confidentiality orders were sought.

The Fund

10. The Fund is constituted by a trust deed dated 6 October 1967, which has been amended from time to time (Trust Deed). The Trust Deed is governed by the laws of New South Wales (Fund Rule 18.9). 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).

11. The Fund was formerly known as the Stevedoring Employees’ Retirement Fund (SERF). SERF merged with a separate fund known as the Seafarers’ Retirement Fund (SRF) (which was established by a trust deed dated 1973) on 1 March 2009 (Merger Date). SERF became known as Maritime Super on the Merger Date.

12. The Fund is an industry superannuation fund, and operates on a “profit-for-members” model, i.e., solely to benefit its members. The Trustee has not hitherto sought or obtained remuneration for its services. The Trustee attempts to operate on a cost-recovery basis as far as possible. As at 30 June 2021, there were over 23,000 members of the Fund across Australia with net assets of the Fund over approximately $6.1 billion. The Fund is a public offer fund.

13. As at 30 April 2021, Fund assets were invested in the Hostplus Pooled Superannuation Trust (Hostplus PST). As the Trustee explains, this means that the Fund gains exposure to underlying investment options that are effectively managed by the trustee of the Hostplus PST rather than by the Trustee (although the Trustee continues closely to monitor the performance of the investments).

The Trustee

14. The Trustee is a limited liability proprietary company.

15. 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.

16. The issued capital of the Trustee is comprised of: Class A shares (which are held by the current member representative directors as nominees of the Maritime Union of Australia, representing the interests of members of the Fund) and Class B shares (which are held by participating employers representing the stevedoring and seafaring industries or a nominee on their behalf). The Class B shares are currently held by the company secretary of the Trustee as nominee for those participating employers.

17. The Trustee has issued four Class A shares and four Class B shares at $1.00 per share, amounting to contributed capital of $8.00, by reference to which it is said that shareholders should be understood as not considering their shares as an investment or asset, in the sense that they do not expect to obtain a financial return from their shareholding.

18. The Trustee’s only business activity is as trustee of the Fund; its personal business activities do not usually generate any net profit.

Fees and reserves

19. The costs of administering and operating the Fund are paid by members by way of fees and costs levied by the Trustee upon members. Those fees and costs include administration fees and costs, investment fees and costs, and transaction costs.

20. By way of administration fees and costs, members pay an annual administration fee of $65 (deducted annually from members’ accounts), plus 0.22% per annum of their account balance (deducted each month and capped for account balances greater than $500,000). Additional operating costs equivalent to 0.10% per annum of members’ account balances are estimated for the financial year ended 30 June 2022, to be paid out of the fund operating reserve (see below).

21. By way of investment fees and costs, members pay investment fees and costs which vary between 0.02% and 0.89% based on the member’s relevant investment option, as estimated for the financial year ended 30 June 2022. The investment fees and costs are deducted daily from members’ gross investment earnings. This is supplemented by a 0.03% per annum pooled asset fee (deducted from members’ accounts monthly), which is the fee for investing in the Hostplus PST for the expected benefits of being part of a larger asset pool.

22. Members also pay transaction costs, which vary based on the relevant member’s investment option between 0.00% and 0.14% (estimated to be 0.10% per annum for the Balanced (MySuper) option based on the transaction costs payable in the previous financial year). This amount is deducted daily from members’ gross investment earnings. Transaction costs represent the costs incurred when assets are bought or sold.

23. The Fund maintains three reserve accounts: an operational risk reserve, an insurance reserve, and a fund operating reserve. The purpose of the reserves is generally to provide pools of funds to meet operational and administrative costs of the Fund.

24. 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 targets a pool of funds equivalent to a specific amount (within a specified operating range) of funds under management from which the Fund can meet operational contingencies.

25. The fund operating reserve holds funds necessary to deal with the operations of the Fund not processed through one of the other reserves or members’ accounts. The balance in the fund operating reserve is the difference between the Fund’s net assets available for members’ benefits and the total amounts allocated to members’ accounts, the assets of the defined benefit sub-funds, and the Fund’s other reserves. This reserve provides a mechanism for the Trustee to meet short term differences between actual and expected expenses and unexpected expenses in the short-term, as well as appropriately to manage taxation payments and cashflows from other Fund operational processes. The target range for the fund operating reserve is a specified percentage of the Fund’s net assets.

26. As at 30 June 2021, the net asset position of the Fund is a surplus of $162,222,000. The fund operating reserve held $29,664,000. The balance of the asset surplus was distributed between the other reserves.

Membership, Divisions and benefits of the Fund

27. The Trustee holds the assets of the Fund on trust to apply them in the manner set out in the Fund Rules, the Maritime Super Rules, the Stevedores Rules, the Seafarers Rules and the Schedules.

28. As from the Merger Date, the Fund has had three separate Divisions: the Maritime Super Division, the Stevedores Division and the Seafarers Division (Trust Deed, Fund Rule 4.2). The Trustee has a power to create Divisions of the Fund (Fund Rule 4.3). The Divisions do not constitute separate superannuation funds; rather, the several Divisions together comprise the Fund (Fund Rule 4.4).

29. The Trustee may segregate some or all of the assets and liabilities of a Division from other Divisions (Fund Rule 4.5). Where assets and liabilities are so segregated, the liabilities of the relevant Division may only be met from assets allocated to that Division, and assets referable to that Division will not be available to meet liabilities of any other Division or the Fund (except to the extent that those liabilities are referable to the relevant Division) (Fund Rule 4.6). This applies even if a Division’s assets are insufficient to meet its liabilities. 

30. Subject to the Statutory Requirements and the Fund Rules in the Trust Deed, benefits are to be paid out of the Fund in accordance with the applicable Division’s Rules and Schedules (Fund Rule 8.1).

31. The Maritime Super Rules provide for benefits to be paid to Members in accordance with one of seven schedules to those Rules. For each Member whose entitlement to benefits is governed by Schedules 1, 2, 3, or 6 of the Maritime Super Rules, the Trustee is required to establish a Maritime Super Account (Maritime Super Rule 5.1). Credits and debits to that account are controlled by Maritime Super Rule 5.2. Specific schedules govern “Teekay Members” (Maritime Super Rules, Schedule 4) and “Trident Members” (Maritime Super Rules, Schedule 5).

Stevedores Division

32. A separate set of rules governs entitlements to benefits of members of the Stevedores Division.

33. Defined benefits payable to members of the Stevedores Division are prescribed in Schedules A1, A2, A3 and/or A4. Where a member has benefits under more than one of Schedules A1, A2, A3 and A4, the Trustee may consolidate those benefits (Stevedores Rule 4.3). The remaining Schedules to the Stevedores Division, Schedules A5 and A6, deal with insured benefits and decisions by participating employers of the Stevedores Division.

34. Schedule A1 of the Stevedores Rules provides defined benefits to members depending on when an individual member retires or whether the member is retrenched or resigns (Stevedores Rules, Schedule A1, Schedule Rules 13-16 and 18). The benefit payable is a function of the member’s period of service, augmented by any additional benefit attributable to voluntary contributions (by way of example, reference is made to Schedule Rule 13, which generally applies when a member retires between age 65 and age 70). Schedule A1 also provides total and permanent disablement and death benefits.

35. Schedule A2 of the Stevedores Division provides an “Accumulation Plus” benefits scheme in which defined benefit entitlements accrued to a point in time expressed as a lump sum equal to the member’s account in the case of a termination event or otherwise supplemented by additional benefits in certain circumstances, such as if the participating employer has paid all amounts due to be paid, and paid out as a lump sum upon death or total and permanent disablement (Stevedores Rules Schedule A2, Schedule Rule 8).

32. Schedule A3 of the Stevedores Division provides for various benefits payable in lump sums, including by reference to the balance of a member’s account comprising contributions and transfers into “Accumulation Basic” or “Accumulation Standard” members’ accounts (Stevedores Rules Schedule A3, Schedule Rule 9).

33. Under Schedules A2 and A3 of the Stevedores Division, lump sum benefits may be converted into allocated pensions or working income support pensions on application in accordance with Schedule 1 of the Maritime Super Division (Stevedores Rules Schedule A2, Schedule Rule 12; Schedule A3, Schedule Rule 11).

34. Schedule A4 of the Stevedores Division provides for benefits to be retained in the Fund on application of an entitled member or their nominated spouse.

35. The Stevedores Rules provide for regular actuarial investigation (at intervals not exceeding two years) of the asset position of the Stevedores Division. In the event of a surplus, there is provision for pensions and benefits to be increased, or future contributions to be satisfied or reduced. In the event of a deficiency, there is provision for the Trustee (with the written agreement of the participating employers of the Stevedores Division and the Maritime Union of Australia) to “remove such deficiency in part or in total by making such changes in the terms and conditions of the Fund as are considered necessary”, subject to actuarial approval (Stevedores Rule 11).

Seafarers Division

40. Benefits payable to members of the Seafarers Division are governed by the Seafarers Rules of the Seafarers Division, except where Schedules B1 to B7 of the Seafarers Division otherwise apply.

41. No benefit shall be payable to or in respect of a Member until the Trustee has ascertained that the benefit may be paid in accordance with the Seafarers Rules (Seafarers Rule 9.1).

42. In the absence of a breach of trust, the Trustee shall not make a payment or payments to or in respect of a person which in total exceed the amount of the Division assets representing the benefits payable in respect of that person under the Seafarers Rules (Seafarers Rule 10.1).

43. The Seafarers Rules require that the Trustee record contributions or rollover amounts received from or for a Member in one or more of the Contribution Accounts prescribed in Seafarers Rule 23. The operation of Contribution Accounts, including the crediting and debiting of interest and fees, is governed by Seafarers Rule 24.

44. The Seafarers Rules provide for regular actuarial investigation (at intervals not exceeding three years) and valuation of the Seafarers Division. The Trustee may act on the actuarial report in such as it thinks fit and, without limitation, may determine amounts or rates of contributions required from participating employers in the Seafarers Division to ensure the proper solvency of the Seafarers Division or any part and/or adjust the benefits in the Seafarers Division or any part for any member (Seafarers Rule 22.3).

45. Some members of the Seafarers Division have a Seafarers Part Member Account and a Seafarers Part Additional Account instead of one or more Contribution Accounts under Seafarers Rule 23 (Seafarers Rules Schedule B1, Schedule Rule 7).

46. The composition of each Seafarers Part Members Account is prescribed by Schedule Rule 8 of Schedule B1 of the Seafarers Division. The composition of each Seafarers Part Additional Account is prescribed by Schedule Rule 9 of Schedule B1 of the Seafarers Division.

47. Upon a Seafarers Part Member (i.e., a member to whom Schedule B1 of the Seafarers Division applies) ceasing to be an employee, and depending on which of three distinct categories of Seafarers Part Member the relevant member belongs to, the benefit payable varies as follows. For Post 2008 Conversion Members, it is the balance of the Seafarers Part Member Account and the Seafarers Part Additional Account (Rule 10.2 of Schedule B1 of the Seafarers Division). For 2008 Conversion Date Members, it is the Seafarers Part Member’s Additional Account balance plus the greater of the Seafarers Part Member’s Member Account Balance and the 2008 Minimum Benefit (Schedule Rule 10.3 of Schedule B1 of the Seafarers Division). For 1998 Conversion Date Members, it is the member’s Additional Account Balance plus the greater of: the Member Account balance; the 2008 Minimum Benefit; and the 1998 Minimum Benefit (Schedule Rule 10.4 of Schedule B1 of the Seafarers Division).

48. The 1998 Minimum Benefit is an amount calculated as functions of the Weekly Benchmark Salary, the member’s completed weeks of membership of the SRF and the Fund as a Contributory Member, and the member’s age at ceasing to be an employee (Schedule Rule 3.1 of Schedule B1 of the Seafarers Division).

49. The 2008 Minimum Benefit is an amount calculated as functions of the Weekly Benchmark Salary, the member’s completed weeks of membership of the SRF and the Fund as a Contributory Member, and the member’s age at ceasing to be an employee, to which is added the total of certain employer and member contributions (Schedule Rule 3.1 of Schedule B1 of the Seafarers Division).

50. A number of other accumulation and defined benefit products are provided for in Schedules B2 to B7 of the Seafarers Division.

Trustee Remuneration

51. The Trust Deed does not include an express power for the Trustee to charge a fee for the services it performs as trustee, and, as noted above, the Trustee does not currently charge a fee to the Fund for the services it provides to the Fund as trustee.

52. The Trustee meets expenses that it incurs out of the Fund. The Trust Deed provides for recovery of the Trustee’s costs from the Fund. Fund Rule 11.5 provides that “[a]ll the expenses in connection with the Fund or the administration of the Trustee are payable from the Fund unless a Fund Employer agrees to meet any of those expenses or unless otherwise required by these Rules”.

53. The Trust Deed also grants the Trustee a broad but limited indemnity for loss or expenditure incurred as trustee. Fund Rule 11.2 provides that:

The Trustee may recover from the Fund any loss or expenditure incurred in relation to the Fund or the administration of the Trustee unless:

it results from the Trustee’s dishonesty or an intentional or reckless failure to exercise the degree of care and diligence required of it; or

the law prevents it.

54. The benefit of Fund Rule 11.2 extends to directors and employees and former directors and employees of the Trustee (Fund Rule 11.4).

APRA MySuper Product Performance Test

55. In August 2021, the Fund’s MySuper product was one of thirteen “MySuper” products that failed APRA’s MySuper Product Performance test. The Trustee acknowledges the importance of that result and has taken steps to identify and rectify the deficiencies in performance of its MySuper product, including investing the Fund’s assets in the Hostplus PST with effect from 30 April 2021.

56. In confidential submissions, reference has been made to a particular matter as to which the Trustee has received advice as to the potential consequences which might flow therefrom (including possible imposition of a financial outcome against the Trustee but also the possibility of non-financial outcomes). I do not propose here to record that advice, save to note that I have considered its import.

57. The Trustee has also been considering other possible causes of action which may be in members’ best financial interests for the members and assets of the Fund at a suitable time. However, there is currently no specific proposal in relation thereto.

Changes in regulatory and operating environment

58. As noted, there have recently been significant changes to the regulatory environment in which the Trustee administers the Fund, which the Trustee explains have made the Trustee’s discharge of its obligations as trustee of the Fund more onerous. Relevantly, the 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 trustee’s conduct. It is said that there has also been a refocus in the legislative and regulatory environment in respect of what are referred to as large “straightforward” accumulation funds, resulting in increasing risks of inadvertent non-compliance for Trustees of mature funds that have complexity in their benefit design.

59. Most recently (and this is what has precipitated the present application), 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 to pay penalties for non-compliance with a wide variety of obligations imposed upon it by Commonwealth law (many of them obligations of strict liability). This liability will arise in any proceedings in which a penalty is imposed after 1 January 2022, including in proceedings commenced prior to that date.

60. The changes to the legislative and regulatory framework affecting superannuation funds of the present kind (and, in particular, the amendments to the SIS Act, and the explanation for those amendments) have been comprehensively detailed in Re QSuper (and also see Re HEST Australia). As noted at [27] of QSuper, ss 56(2) and 57(2) of the SIS Act were amended with effect from 1 January 2022 as follows (with mark-ups indicating the amendments):

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.”

61. As Kelly J noted (at [28]), the amendments to ss 56(2) and 57(2) were described 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.”

62. In Re QSuper, Kelly J noted (at [29]) that, prior to these amendments, ss 56(2) and 57(2) had been understood to allow superannuation fund trustees, and directors of the trustees, to indemnify themselves for all liabilities they incurred by acting as trustee, or as a director of the trustee, even if those liabilities were incurred in breach of trust, except for liabilities which were attributable to dishonest, intentional, or reckless conduct, or a liability with respect to a statutory penalty. That will not be the case from 1 January 2022.

63. As noted above, the Trustee considers that, in view of these changes to its operating environment, 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.

64. The Trustee has reached that conclusion having regard to the following: the Trustee has not been able to identify any suitable and feasible alternative to charging the proposed Trustee fee; the proposed Trustee fee would have no direct financial impact on members and a minimal and equitable indirect financial impact (given that it is intended to be paid, at least in the next three financial years, from accessible reserves); and that charging the proposed fee would allow the Trustee to build up a pool of personal capital in order to mitigate the risk of insolvency otherwise posed by the risk of imposition of penalties for which the Trustee will not be able to be indemnified out of the Fund. Further, the Trustee says that mitigation of this solvency risk would in turn reduce the risk that members would incur the costs of the Trustee becoming insolvent (which costs the Trustee has estimated on the basis of various insolvency outcomes such as in the event that an SFT became necessary or in the event that a replacement trustee could be found although this is not expected to be a long-term possibility). Mitigation of this solvency risk would also reduce the risk that would otherwise arise of the Trustee becoming unable to attract suitably qualified, skilled and experienced individuals to accept appointments as director of the Trustee (and/or of the Trustee becoming unduly risk averse in administering the Fund), which it is perceived would adversely affect the performance of the Fund and therefore returns to members. Finally, the Trustee has had regard to the fact 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 that other trustees would be facing the same personal financial risks). Pausing here, this last factor is amply borne out by the plethora of applications similar to the present that have recently been brought in jurisdictions across the country.

65. The Trustee’s proposed amendment contemplates that the remuneration power would be subject to limits to ensure that the fee levied remains no higher than what the Trustee considers to be a fair and reasonable rate of remuneration for the services it provides.

66. The proposed amendment to the Trust Deed would empower the Trustee to impose a Trustee fee in an amount equivalent to up to 0.30% of the net assets of the Fund for each successive period of three financial years with the first triennial period commencing on 1 July 2021 (Triennial Limit).

67. In addition to the Triennial Limit on 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 Trustee Capital). The Cap on Trustee Capital is to be set initially at an amount equal to 0.50% 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 Trustee 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.

68. The Triennial Limit and the Cap on Trustee Capital have been set by reference to the Trustee’s assessment of what level of remuneration: (a) compensates the Trustee for the risks of personal liability which it assumes in and through providing services as Trustee to the Fund, including risks of personal liability assumed by the directors of the Trustee for which the Trustee indemnifies the directors; and (b) enables the Trustee to recover its costs of remunerating directors and obtaining insurance coverage against liabilities incurred in the discharge of its duties as trustee of the Fund (to the extent that such coverage is available).

69. The Trustee has calculated a reasonable rate of remuneration for the risks of personal liability assumed by the Trustee using modelling that has been independently undertaken by PricewaterhouseCoopers (PwC) in collaboration with the Trustee and is based on a data set prepared by a law firm for the Australian Institute of Superannuation Trustees and adapted by PwC as needed. The details of the financial modelling are set out in section 4 of PwC’s Report on Trustee Fee and Trustee Capital. The Trustee has submitted the Triennial Limit, Cap on Trustee Capital and target Trustee capital determined to external validation.

70. Costs of remunerating directors are based on estimated costs of remunerating directors and obtaining directors and officer liability insurance for the financial year ending 30 June 2022, multiplied by three, to generate estimates for the current period of three financial years commencing 1 July 2021.

71. As noted, the Triennial Limit and Cap on Trustee Capital would be subject to review every three years. The Trustee would be required to amend the Triennial Limit and the Cap on Trustee Capital to accord with the outcome of each such review.

72. It is proposed that the Trustee Capital would be held by the Trustee for the sole 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 of the Trustee. A policy will be adopted by the Trustee governing use of the Trustee Capital and preventing its use for extraneous purposes.

Amendment Power

73. As already noted, the Trust Deed does not include an express power for the Trustee to charge a fee for the services it performs as Trustee. Rather, the Trust Deed provides for recovery of the Trustee’s costs from the Fund (Fund Rule 11.5).

74. The general amendment provision of the Rules, however, permits the Trustee by deed to amend any of the provisions of the Rules (Fund Rule 16.1). Pursuant to Fund Rule 16.2, no amendment may take effect in respect of a Member or other beneficiary:

…

(b)    which results in the transfer of any part of the Fund to the Union, a Full Participating Employer or a Seafarers Participating Employer;

(c)   which, in the opinion of the Actuary (whose decision is final), substantially prejudices the right of any person already a Pensioner Member or (for the purposes of the Seafarers Division) a Life Pension Member at the date of such alteration; 

(d)   in respect of the Stevedores Division only:

where the Fund has Members who had a defined benefit interest as at 5 September 2006, unless the Trustee has sought and obtained advice from the Actuary about whether the conditions and requirements in section 292-170(6) and (7) of the Income Tax Assessment Act 1997 (Cth) will be satisfied;

where the Fund has Members who had a defined benefit interest as at 12 May 2009, unless the Trustee has sought and obtained advice from the Actuary about whether the conditions and requirements in section 292-170(8) and (9) of the Income Tax Assessment Act1997 (Cth) will be satisfied;

(e)   in respect of the Seafarers Division only – which reduces the amount of any benefit that may become payable to or in respect of a Member to the extent that it relates to his or her membership up to the date of the alteration without his or her consent in writing, unless that alteration to these Rules is consistent with the Statutory Requirements and introduced primarily for the purpose of securing exemption or relief from any tax, duty or impost in respect of income of … the Fund, or primarily for the purpose of complying with or conforming to present or future State or Commonwealth legislation governing or regulating the maintenance or operation of superannuation, pension or like funds

75. It is noted in this regard that the Fund Rules in relation to the Stevedores Division and the Seafarers Division include provision for defined benefit or final salary pensions where the payment of these benefits is underwritten by broad powers vested in the Trustee to take steps (such as levying higher contributions) in certain circumstances on actuarial advice (see Stevedores Rule 11 and Seafarers Rule 22.3).

76. In addition, Schedule Rule 14.1(b) of Schedule 4 (Teekay Members) and Schedule Rule 14.1(b) of Schedule 5 (Trident Members) of the Maritime Super Rules each provides that:

No amendment under Fund Rule 16 may, in the opinion of the Trustee and of the Principal Employer, after obtaining the advice of the Actuary, be detrimental to the rights or interests of any such Member in respect of contributions made to the Teekay Plan prior to the Revision Date.

Possible conflict of interest

77. As noted above, the Trustee has formed the view that making the proposed amendments to the Trust Deed is in members’ best financial interests. However, against the possibility that it may be suggested that the directors may have a conflict of interest in making the amendments since, on its face, the proposed 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) at some indirect cost to members, the Trustee has resolved to seek judicial advice on the question whether the Trustee would be justified in amending the Trust Deed in the manner set out in the Draft Deed of Amendment.

Trustee’s submissions

78. It is noted that the only jurisdictional bar to the exercise of the power under s 63 of the Trustee Act is the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument (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 (Macedonian Church) at [58]). The primary function of the jurisdiction is to facilitate the provision of “private advice” to the trustee (Macedonian Church at [64]-[65]).

79. The Trustee notes 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 (citing Crnjanin v Ioos [2010] NSWSC 750 at [28]); and that it is not the function of the court to take over the exercise of the trustee’s discretion or to assess the wisdom of the trustee’s decision (citing McKinnon v Samuels [2000] VSC 393 at [14]), nor to order the trustee what to do; rather, the order is permissive and usually expressed in the form that the trustee is justified in acting in a particular way, (see Re Application of NSW Trustee & Guardian [2014] NSWSC 423 per Kunc J at [24]). In the last mentioned decision, Kunc J said (at [25]-[26]):

In applying to the court for judicial advice, the trustee is not abrogating or delegating its obligation to apply its own judgment in deciding whether to do (or not do) something in execution of the trust. The trustee must actively and honestly bring its mind to bear on any particular problem confronting it. Where necessary, it is entitled to do so with the benefit of such legal or other advice (for example, accounting, actuarial or valuation) as the trustee thinks appropriate. The trustee should then determine a course of action subject, again if it thinks appropriate, to obtaining judicial advice about that course of action. …

The analysis in the preceding paragraph is reflected in the basic principle that, in the exercise of its undoubted discretion as to whether or not to give the advice, the court will not give advice about hypothetical matters. Because trustees generally apply for judicial advice to obtain the benefit or protection of s 63(2) of the Act, it is implicit in a judicial advice application that the trustee intends to act in the way the application identifies, assuming favourable advice is given. To put the matter beyond doubt, it is good practice for the trustee, in its affidavit accompanying the application, to depose that that is what it has in fact resolved to do.

80. It is further noted by the Trustee 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” (citing Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201, which was in turn quoted in Macedonian Church at [104]).

81. The Trustee notes that it may be appropriate to seek judicial advice in relation to a proposal by the trustee to amend the trust deed, the role of the court there primarily being to advise as to the lawfulness of the course which the trustee is minded to pursue (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 (Chamberlain v Spry [2008] VSC 562 at [14]), rather than opining on the merits of the proposed course. It is also noted that judicial advice may be provided 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 (Re Cuesuper Pty Ltd [2009] NSWSC 981 (Re Cuesuper) at [22]).

Service of application

82. The Trustee did not serve its application for judicial advice (other than on APRA). It says that this is consistent with s 63(4) of the Trustee Act and that service of the application is not warranted in the present case where the directors include member representative directors that are nominated by organisations representing the interests of members of the Fund and have approved this application. It is submitted that it can be taken that representatives of members of the Fund are aware of the application. (It is noted that APRA appeared as amicus curiae).

83. The Trustee points out that in each of Re Queensland Coal and Oil Shale Mining Industry (Superannuation) Ltd [1999] 2 Qd R 524 (Queensland Coal and Oil Shale Mining) per Williams J (an application under the Queensland equivalent of s 81 and the inherent jurisdiction), Re Cuesuper and Re Retail Employees Superannuation Trust Pty Ltd [2013] NSWSC 1681 (Re Retail Employees Superannuation Trust), service on the members was not required by the Court (noting Palmer J’s observations in Re Cuesuper at [8]-[10]) and that a similar approach was followed in Re QSuper (see at [17]).

84. At the hearing of the application, I accepted that it was not necessary for notice of the application to be given to members (essentially for the reasons submitted by the Trustee) and proceeded to hear the application. In this regard I note in particular that member interests are represented by directors on the Board, that APRA had been served (and was appearing at the hearing), and I had in mind the likely cost and inevitable delay were such notice to have been required.

Trustee’s power to amend

85. There is no issue that a trustee may amend a trust deed pursuant to an express power albeit that the trustee 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 has been said that the trustee should act in a way which appears to it to be fair and equitable in the circumstances (see Invensys at [62]). Obviously, the Trustee is here also required, in exercising its power to amend, 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.

86. Amending powers in superannuation trust deeds are construed in a way which takes into account the fact that such funds are intended to operate over a long period and often against a changing commercial and legislative background (see Millett J, as his Lordship then was, in Re Courage Pension Schemes [1987] 1 WLR 495 (Courage) at 505-6).

87. That said, where an amending power in a trust is subject to express restrictions, the restrictions must be complied with (see Walker Morris Trustees Ltd v Masterton [2009] EWHC 1955 (Ch) at [48]; Trustee Solutions v Dubery [2006] EWHC 1426 (Ch) at [19]; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294 at 300-301) and a trustee cannot employ its amending power to remove those restrictions (see Retail Employees Superannuation (2016) 115 ACSR 1; [2016] SASC 121 at [714]; 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).

Remuneration of Trustees

88. The Trustee notes that equity has historically expected trustees to act gratuitously (referring by way of example to Robinson v Pett (1734) 3 P Wms 249; (1734) 24 ER 1049); this being a manifestation of the rule that a fiduciary must not put itself 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) nor can it pursue a personal gain in a position of conflict.

89. However, a trustee can take advantage of an express provision permitting trustees to charge and deduct from trust money remuneration for the trustee’s services (Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 3 All ER 75 at 76-7; [1986] 1 WLR 1072 at 1073-75).

90. The Trustee points out that, even where a Trust Deed does not allow for remuneration of a trustee, the Court in its inherent jurisdiction may allow remuneration in a proper case, the Trustee pointing to authority where it has been recognised that, where the work of the trust takes up a great deal of the trustee’s time (so that, in order to obtain proper services from the trustee, it is in the interests of the trust that the trustee should be remunerated) the inherent jurisdiction may be exercised to empower the trustee to receive remuneration (see Marshall v Holloway (1820) 2 Swan 432 at 435-6; 36 ER 681 at 683; Re Freeman’s Settlement (1887) 37 Ch D 148; Nissen v Grunden (1912) 14 CLR 297; [1912] HCA 35; In re Duke of Norfolk’s Settlement Trusts [1982] Ch 61 (In re Duke) at 78 and see the discussion in JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (8^th ed, 2016, LexisNexis Butterworths) at [17-39]). The basis for intervention in this situation is the “ancient jurisdiction to secure the competent administration of the trust” (see In re Duke at 78).

91. The Trustee accepts that, in exercising a power to amend, a trustee is exercising a fiduciary power; and that, to introduce a power to make a profit is prima facie inconsistent with the rule that a fiduciary is not entitled to make a profit or place itself in a position of conflict (c.f., Re French Protestant Hospital [1951] Ch 567 (Re French Protestant Hospital)) (hence the present application).

Conflicts

92. The Trustee points out that the possibility of the existence of a conflict justifies an application for judicial advice, referring in this regard to Re Cuesuper (at [22]); Baymill Investments Pty Ltd v Drewlock Pty Ltd [2019] VSC 827 (at [90]); Hancock v Rinehart (2015) 106 ACSR 207; [2015] NSWSC 646 (at [379]-[383]); Macedonian Church (at [104]), where it was recognised that the application for judicial advice can mitigate such a conflict.

Issues for consideration

93. The Trustee has addressed in its submissions the following issues that arise in determining whether it would be justified in exercising its amendment power under the Trust Deed to provide for a power to charge a fee: first, whether any of the express restrictions on amendment are engaged; second, whether the the proposed exercise of the amendment power would be a proper exercise of that power in accordance with principles of equity and trust law; and, third, whether the proposed exercise of the amendment power would be in accordance with the Trustee’s statutory obligations (including under the SIS Act).

Restrictions on amendment power not engaged

94. The Trustee says that the proposed amendment does not engage any of the express restrictions on the Trustee’s power in Fund Rule 16.1 of the Trust Deed. It is noted that the Trustee is not a Full Participating Employer” or a “Seafarers Participating Employer” as defined in the Trust Deed (so that Fund Rule 16.2(b) does not apply) and that actuarial advice has confirmed that none of Fund Rules 16.2(c) or (d) or Schedule Rule 14.1(b) of Schedules 4 and 5 of the Maritime Super Rules is engaged by the proposed amendments.

95. The Trustee also submits that Fund Rule 16.2(e) poses no impediment to the proposed amendments. As extracted above, that clause provides, relevantly, that no amendment may take effect in respect of a Member or other beneficiary:

in respect of the Seafarers Division only – which reduces the amount of any benefit that may become payable to or in respect of a Member to the extent that it relates to his or her membership up to the date of the alteration without his or her consent in writing, unless …

96. In this regard, the Trustee makes the following submissions. First, that Fund Rule 16.2(e) in its terms only affects amendments purporting to “reduce the amount of any benefit that may become payable to or in respect of a Member”, whereas the proposed amendment does not purport to reduce the amount of any benefit.

97. Second, that, even if Fund Rule 16.2(e) were to be construed as if it employed the language of indirect consequence (i.e., such that it precluded in effect “an amendment which reduces or has the effect of or results in reducing the amount of any benefit that may become payable”), the limitation would only apply if the effect or result of the amendment was that an amount of benefit that may become payable was reduced. It is said that where, as here, the Trustee fee is to be paid out of accessible reserves for at least the first three financial years, the Draft Deed of Amendment does not have that effect; and that, absent the existence of the effect at the time of the amendment, the restriction would not operate.

98. Third, that, in any event, in order for the restriction to operate in these circumstances, it would be necessary to show that the Draft Deed of Amendment had the effect of reduction of the amount of a benefit which may become payable to the extent that it related to the member’s membership up to the date of the alteration. The Trustee postulates two possible meanings of the qualifying clause (“to the extent that it relates to his or her membership up to the date of the alteration”): (i) that it may indicate that all benefits are encompassed by the limitation (a distinction being made between the position prior to the alteration and after the alteration) or (ii) that it may indicate that some sub-class of benefits is encompassed by the limitation, rather than all benefits payable under the Seafarers Division. The Trustee submits that the latter meaning should be preferred. It submits that, had the former meaning been intended, the limitation would apply both to members who have a right to benefits with “Contribution Accounts” and “Seafarers Part Members”. I agree.

99. The Trustee says that, in either case, the amount of benefits which may become payable are amounts which are amounts derived after deductions for expenses. In the case of members with Contribution Accounts, the benefit payable is a member’s “Accumulated Benefit” (Seafarers Rule 12.2), which is generally the total balance in the Contribution Account of a member maintained under the Seafarers Rules (see definition in Seafarers Rule 3.1). Contributions are credited to Contribution Accounts but “expenses” are debited, as are other amounts which the Trustee decides to debit to the account: Seafarers Rule 24.1. It is said that the proposed Trustee fee would constitute an expense which the Trustee could debit to the Contributions Accounts and, accordingly, “the amount of any benefit that may become payable to or in respect of a Member” in respect of a Contribution Account (for the purposes of Fund Rule 16.2(e)) would be an amount from which the proposed Trustee fee would already have been debited. It is said that the same applies to Seafarers Part members’ accounts (referring to Schedule Rule 8.1(b)(i) and (ix)(B) and Schedule Rule 9.1(b)(i) and (ix)(B) of Schedule B1 to the Seafarers Division).

100. The Trustee says that, even if the entitlement to charge the Trustee fee as an expense must be ignored in calculating “the amount of benefit that may become payable”, it would still be necessary (in determining the “effect” of the introduction of the proposed Trustee fee) to identify how the amount of benefit payable (at some point in the future) would be reduced to the extent that it related to a member’s membership at the time of the amendment. The Trustee argues that, at the very least it would be necessary to show that the charging of the Trustee fee, of itself, would result in a member’s balance of account being reduced below the member’s balance of account as at the time of the amendment. It is far from clear that this result would necessarily follow.

101. Therefore, the Trustee argues that, if the former meaning of the phrase “to the extent that it relates to his or her membership up to the date of the alteration” were to have been intended, it is far from clear that Fund Rule 16.2(e) would operate. In any event, it is said that for the reasons set out above, Fund Rule 16.2(e) would not operate in any event.

102. Alternatively, if the latter meaning was intended (so that the intention of Fund Rule 16.2(e) was to protect a sub-class of benefits), the Trustee says that it would be necessary to identify some sub-class intended to be encompassed by the phrase “to the extent that it relates to his or her membership”. It is noted that all benefits payable to members “[relate] to his or her membership” in some way. The Trustee argues that, insofar as it is possible to identify any sub-class, the contrast would seem to be between a benefit referable to a member’s contributions to the Fund, and a benefit that is not directly referable to any contribution but, rather, is a privilege or entitlement of membership of the Seafarers Division or a function of years membership of the Seafarers Division.

96. The Trustee notes that, of the benefits payable under the Seafarers Division, only benefits payable to Seafarers Part Members under Schedule B1 to the Seafarers Division are not directly referable to contributions (whether made by or on behalf of the member), those being referable to years’ membership of the Fund.

97. Benefits payable to “2008 Conversion Date Members” and “1998 Conversion Date Members” of the Seafarers Part under Schedule B1 to the Seafarers Division, upon leaving the industry or ceasing to be an employee (other than by death or certain medical conditions), are calculated by reference to the member’s applicable Additional Account balance plus the greater of their Member Account, 1998 Minimum Benefit and/or 2008 Minimum Benefit as applicable. The 1998 Minimum Benefit and 2008 Minimum Benefit are calculated by reference to the member’s “completed weeks of membership of the SRF Fund and this Fund” (Schedule Rule 3 of Schedule B1 to the Seafarers Rules).

98. Thus, the Trustee says that the words “to the extent that it relates to his or her membership up to the date of the alteration” may be intended to encompass benefits calculated by reference to a Seafarers Part Member’s “completed weeks of membership of the SRF Fund and this Fund” in Schedule Rule 3.1 of Schedule B1 to the Seafarers Rules. If so, it is said that the effect of Fund Rule 16.2(e) would appear to be to forestall any amendment of the Trust Deed which purported either to alter the quantum of the 1998 Minimum Benefit or the 2008 Minimum Benefit or to modify the relation between those amounts and the benefits payable to Seafarers Part Members (and in particular to 2008 Conversion Date Members and to 1998 Conversion Date Members).

99. It is noted that the proposed amendments to the Trust Deed will not have any direct bearing upon the 1998 Minimum Benefit, the 2008 Minimum Benefit or the relation between benefits payable to Seafarers Part Members and those two amounts.

100. Nor, the Trustee says, could the proposed amendments have any indirect bearing on those matters. It is noted that the Seafarers Part is subject to regular actuarial investigation (Schedule Rule 6.6 of Schedule B1 to the Seafarers Rules). It is noted that, in the event that a deficiency is discovered in the assets of the Division hypothecated to paying (where necessary) the 1998 Minimum Amount and the 2008 Minimum Amount, the Trustee must require additional contributions of 2008 Conversion Date Members, which contributions participating employers of the Seafarers Division are required to match and double, and may “mak[e] such changes in the terms and the conditions of the Fund and/or the benefits (other than Members’ Accumulated Benefits) as are considered necessary” to redress the deficiency (Schedule Rule 6.9 of Schedule B1 to the Seafarers Rules).

101. The Trustee says that Schedules B2 to B6 of the Seafarers Rules raise no additional difficulties. Schedules B2 and B3 are or include accumulation accounts from which Fund expenses are debited, such that any administrative fee levied in connection with the Trustee fee would not be expected to alter benefits payable by reference to years’ membership of the Fund. Schedule B4 is an accumulation product. Schedules B5 and B6 provide final salary schemes which are unaffected by the Draft Deed of Amendment for the same reasons given above.

102. Accordingly, it is said that even if the phrase “to the extent that it relates to his or her membership up to the date of the alteration” were to have been intended to protect a sub-class of benefits, Fund Rule 16.2(e) would not operate in any event.

103. Thus, the Trustee argues that Fund Rule 16.2(e) would not operate so as to render the Draft Deed of Amendment ineffectual; and, hence, the Trustee submits that Fund Rule 16.2(e) is no impediment to the proposed amendment. For the reasons put forward by the Trustee, I agree.

Amendment power exercised properly in accordance with principles of equity and trust law

111. As to the second issue identified above, the Trustee submits that, in exercising the power of amendment to introduce the Trustee fee as proposed, it would be acting properly in accordance with principles of equity and trust law. The Trustee notes that it has undertaken significant preparation in determining the course which it proposes to adopt; and that it has sought and relied on expert advice in its deliberations and in making its decision. The Trustee submits that the evidence shows that the Trustee is proposing to exercise the power of amendment in good faith and upon a real and actual consideration, and that the power is being exercised in accordance with the purposes for which the power was conferred and in a way which appears to it to be fair and equitable in the circumstances. I agree.

112. The Trustee notes that the appropriateness of the amendment must be tested by reference to the situation at the time of the proposed amendment (see Courage at 505-6). The Trustee says that the situation at the present time is very different from that which applied when the Fund was established, pointing to the significant changes to the applicable legal, regulatory and enforcement framework referred to above, which have increased the personal financial risks faced by superannuation fund trustees and their directors and which have given rise to a risk of insolvency for the Trustee (a “profit for members” entity with nominal capital) which was not faced by it when the Fund was established.

113. The Trustee submits that the purpose of the amendment (in the sense of “the substantial object the accomplishment of which form[s] the real ground of the [Trustee’s] action”) is to provide the Trustee with a fee-charging power that is necessary to ensure its financial resilience, which it submits will in turn promote the beneficial administration of the Fund.

114. The Trustee submits that, absent the payment of the Trustee fee, the Fund will potentially be exposed to the loss of the Trustee, with concomitant financial detriment. As adverted to above, it is said that any replacement trustee would likely require payment of a fee in any event (c.f., In re Duke).

115. As to conflict of interest, again as adverted to above, the Trustee accepts that, by enabling the Trustee to accumulate a pool of personal capital out by levying a fee against the Fund, it may be said that 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 Trustee Capital) and that, in this process, the Trustee’s balance sheet would be inflated by the amount of the Trustee capital. However, the Trustee submits 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. The Trustee maintains that the purpose of the proposed fee is to provide capital to permit the Trustee to continue to function without risking insolvency and the substantial negative financial consequence for members which would then ensue. I accept that this is the fundamental issue which has precipitated the present application.

116. It is said (and I accept) that the amendment will not provide the Trustee with a private profit able to be utilised for the benefit of shareholders, noting that the Trustee’s Constitution precludes the directors from declaring or determining a dividend or applying any portion of the Trustee’s capital or income to a shareholder, precludes shareholders from receiving any dividend or return of capital and precludes the distribution of capital to shareholders on a winding up of the Trustee. The Trustee Capital generated by the fee is be held by the Trustee for the sole purpose of enabling the Trustee to discharge its duties as Trustee of the Fund.

117. The Trustee submits that it would not be proscribed (notwithstanding 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”. In that regard, the Trustee says that the decision of Dankwerts J in Re French Protestant Hospital (see below) does not modify that position. It is noted that there (where the purported exercise of power to amend to provide for profit costs and fees for directors was held to be invalid), the case did not involve an application for judicial advice but, rather, a challenge to the purported exercise of power after the event. The Trustee says that the decision does not establish any principle which would preclude the exercise of power in the present case.

118. In Re French Protestant Hospital, 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. Dankwerts J held that an amendment of the by-laws authorising directors to charge profit costs and fees was invalid. The Trustee submits that Re French Protestant Hospital poses no impediment to the Trustee proceeding with the proposed amendments, for the following three reasons.

119. 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 proposed Trustee fee in the present case is of quite a different character (being designed to facilitate the ability of the Trustee to continue to perform its role as trustee, rather than to expose itself to insolvency, the loss of the Trustee and the potential for substantial cost to members).

120. Second, 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. The Trustee says 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, that his Honour held (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 that, if it were said that it was not repugnant, it was not reasonable to insert such a provision in trusts of the kind there being considered (and hence the amendment was not “reasonable and not repugnant to 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 that the present case does not involve a charitable trust but, rather, a superannuation trust where powers of remuneration are now commonplace.

121. Third, it is said that, as a matter of reality, the proposed amendments would not confer any personal advantage upon the Trustee, or upon its directors which is in conflict with its duties to members (or, certainly, would not confer an advantage of a type which was not, at least implicitly, contemplated under the current Trust Deed). The Trustee maintains that the benefits of mitigation of the risk of insolvency and moderation of the directors’ exposure to personal indemnity are incidental to the effect of the amendments 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. Further, it is said that if the Trustee remained 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.

Exercise of amendment power consistent with Trustee’s SIS Act obligations

122. As to the third of the issues identified, the above, the Trustee submits that, in exercising the power of amendment, it will comply with its relevant statutory obligations, including s 52(2)(c) and (d) of the SIS Act. It is submitted that the Trustee’s view that the proposed amendment is in the best financial interests of members has substance; 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 for the financial benefit of members; and that, in order to continue to discharge its obligations as trustee, the Trustee must have the 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. The Trustee emphasises 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, to the financial detriment of members.

123. The Trustee acknowledges that the proposed amendments do not eliminate the risks of insolvency of the Trustee (or liability, beyond the limits of any available indemnity, of the directors); rather, that the Triennial Limit on the proposed Trustee fee and Cap on Trustee Capital (both of which are limited and subject to regular review to ensure the rate of remuneration remains fair and reasonable) operate to mitigate the Trustee’s solvency risk and moderate the directors’ personal exposure.

124. For these reasons, the Trustee submits that the proposed amendments promote the beneficial administration of the Fund; and says that the Trustee can properly form, and has properly formed, the view that the amendment is in the best financial interests of members. I agree.

125. It is said that the matter referred to at [56] above does not derogate from this position (the Trustee here pointing to the advice received in connection with this matter). The Trustee says that the potential consequences to which reference has been made would not negate the advantage to members of avoiding insolvency of the Trustee.

126. As to the matters to which reference is made at [57] above, it is noted that no decision has yet been made. The Trustee submits that for the reasons set out in confidential submissions there are good reasons for concluding that it is in the best financial interests of members that the Trustee takes steps now to avoid the risk of insolvency.

127. The Trustee emphasises that it is facing a real risk of insolvency if it continues to operate without accumulating personal capital, certainly as from 1 January 2022; and that insolvency risk in turn carries a financial risk for the members of the Fund. It is submitted that, for the Trustee to continue to operate without addressing that risk by commencing to accumulate personal capital, could lead to a Trustee insolvency and serious financial consequences for members, which would exceed the consequences of imposing the Trustee fee.

128. Reference is made to the observations of Kelly J in Re QSuper (at [36]), when considering s 52(2)(c), 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”; 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”; 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”; 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”.

129. The Trustee submits that the proposed amendments would be justified by reason of the principles and considerations identified by Kelly J in Re QSuper. In essence, it is said that similar “good and sufficient reasons” for consenting to the proposed amendment, identified by Kelly J in that case (at [37]) are applicable to the present case. In particular, that since the Fund’s establishment: (a) there have been substantial changes to the legal, regulatory and enforcement environment in which the Trustee operates which have significantly increased the Trustee’s financial risks (c.f., Re QSuper at [37(c)]); and (b) there has been a considerable increase in maximum penalties for non-compliance, a pronounced increase in regulatory scrutiny and enforcement efforts, particularly following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and amendments to ss 56 and 57 of the SIS Act (made in December 2020 and which will come into effect on 1 January 2022) which will significantly limit indemnities for Trustee and directors (c.f., Re QSuper at [37(g), (m), (n), (p)]). It is noted that the Trustee has limited contributed share capital of $8 and contribution of further capital is not available and that existing insurance will not adequately address the financial risks facing the Trustee and directors.

130. The Trustee says that the summary of the position in Re QSuper (at [38]) is equally applicable in the present case:

It is clearly in the best financial interests of the members of the QSuper Scheme that the QSuper Board take steps to ensure the due and proper administration of the QSuper Fund. One important aspect of the due and proper administration of the QSuper Fund involves protecting against any risk of its trustee becoming insolvent. The QSuper Board is required to undertake complex work carrying with it a high degree of responsibility. Given the nature of that work, it is in the best interests of the members of the QSuper Scheme that the QSuper Board be comprised of highly competent, reputable and experienced individuals who are prepared to undertake obligations which have been recognised as significant and burdensome [citing Re Cuesuper Pty Ltd [2009] NSWSC 981 at [14]; Re Retail Employees Superannuation Pty Ltd [2013] NSWSC at [15]]. Such persons are unlikely to be attracted, or prepared, to serve on the QSuper Board if it is required to operate under the spectre of an insolvency risk.

131. As noted above, the Trustee has formed the view that the proposed amendments are in the best financial interests of members. The Trustee submits that, having regard to the matters contained in the evidence prepared in support of the application for judicial advice, there is no reason to doubt that view; and it is submitted (see above) that the Trust Deed would not involve a breach of the conflict covenants in s 52(2)(d) of the SIS Act.

Alternative relief

132. As noted at the outset, the Trustee’s primary application is for the judicial advice sought in the Summons. An alternative claim is made for relief under the inherent jurisdiction or, further in the alternative, under the expediency jurisdiction under s 81 of the Trustee Act. However, the Trustee has proposed that (since the basis for the alternative application might be impacted by views formed in considering the application for judicial advice), the alternative claims only be considered if the need to press them were to arise. I have concluded that judicial advice should be given they do not. Therefore I only briefly here note the submissions that were made as to the basis on which such relief would be sought.

145. Further, it is noted that the Trustee has proposed to smooth the initial impact on current and future members by deducting the proposed trustee fee from the Fund’s Operating Reserve, rather than by increasing immediately the administration fee charged to member accounts.

146. In a confidential annexure to APRA’s submissions an issue was raised that, from a factual point of view, APRA considered might distinguish the Fund from others that have applied or may be applying for similar relief. Relevantly, an issue was raised as to whether (if certain, there identified, circumstances were to arise) the potential consequence of the proposed building up of a capital pool for the Trustee might not be in the best financial interests of the members (in effect because there might be an excess capital pool in those circumstances). APRA noted that the material put forward by the Trustee did not outline any proposed means of ameliorating that potential adverse consequences or other consideration as to what would occur in those circumstances, though accepting that this would need to be balanced with the risks to members if the amendment were not made and a liability were to arise that crystallised the insolvency risk identified by the Trustee (and outlined above).

147. APRA made clear that it was raising the above for the Court’s (and the Trustee’s) consideration, not that it was suggesting that this was an issue that would necessarily preclude a finding that the proposed amendment was in the members’ best financial interests.

Trustee’s further submissions

166. As the Trustee had not had an opportunity in advance of the hearing to consider the issues raised in the confidential annexure to APRA's written submissions, I gave leave for the Trustee to file further submissions on that issue.

167. Having considered APRA’s confidential submissions, the Trustee submits that the risk there identified is not one which can, or properly should, be considered by the Trustee in forming a view as to whether the proposal for it to charge the proposed fee to maintain its financial resilience is in members' best financial interests. In this regard, the Trustee submits that the risk is, at this stage, an hypothetical one, depending upon a number of variables and unknowns; and that whether the risk will materialise would depend upon the particular facts existing at the relevant time (as identified in its reply submissions and for the reasons there stated).

168. The Trustee acknowledges that the issue identified by APRA may well be a relevant issue to be considered at such later time when any relevant decision is made, noting that the Trustee would at that time be subject to its ordinary equitable and statutory duties including statutory covenants (and it is said that the Court is entitled to assume, on this application, that the Trustee will comply with those duties – see Re QSuper at [41]). The Trustee submits that the issue should be addressed if and when it becomes a real issue and not as part of the present consideration about whether to amend the deed to enable a fee to be charged. It is submitted that it would be impractical for the Trustee to deal with the issue at this stage (particularly where no relevant decision has yet been made).

169. Ultimately, the Trustee submits that the potential risk identified by APRA is not a matter which would found a view that the trustee would not be justified in amending the deed as contemplated. Reference is made to the evidence of the chief executive officer of the Trustee in this regard. It is submitted that, having regard to the matters referred to in the Trustee’s submissions, the potential adverse consequences to members (were the proposed amendment not to be made and a decision of the relevant kind had to be made in circumstances where the insolvency risk had materialised) outweigh the matters to which APRA has pointed.

Supplementary submissions

170. Further supplementary submissions were forwarded by the Trustee (with leave) while judgment was reserved, briefly commenting on the two recent Victorian decisions on similar applications to which I have referred above (Re HEST Australia and Re Care Super).

Re HEST Australia

171. Taking those decisions not in chronological order, Re HEST Australia involved an application for judicial advice by a trustee of a “profit-for-members” superannuation fund, having no personal capital, as to whether the trustee was authorised to amend the trust deed to introduce a power to pay a trustee fee out of the assets of the fund (see at [1], [3], [13], [18]).

172. The proposed power in Re HEST Australia was of a similar kind to the proposed power in the present case in that: it authorised the trustee to determine that a trustee fee was payable if the “Trustee Capital Reserve Condition” and the “Trustee Fee Condition” were both satisfied on the date the trustee paid the trustee fee from the fund (see at [13]); the “Trustee Capital Reserve Condition” was a condition which was satisfied if, on the day of payment, the balance of the net tangible assets held by the trustee in its personal capacity did not exceed 0.125% of the net assets of the fund (see at [14]); the “Trustee Fee Condition” was a condition which was satisfied if the aggregated value of the trustee fee paid in each three year period did not exceed 0.125% of the net assets of the fund (see at [15]); thus there were two caps on the fee payable (a cap on the fees payable over any sequential three year period (i.e., the total fee payable over that period could not exceed 0.125% of the net tangible assets of the fund) and a cap which prevented any fee being payable to the extent that the trustee’s personal net tangible assets exceeded 0.125% of the net assets of the fund) (see at [16]); and the trustee had the flexibility to determine whether to take any fee, when and how much within the prescribed limits (see at [16]).

173. The Trustee notes that the proposed amendments in Re HEST Australia also introduced an obligation to make annual disclosures of the amount of fees paid and other amounts; but that, unlike the present case, the proposed amendments in Re HEST Australia did not contain a provision requiring regular review of the amount of the fee, having regard to expert advice.

174. It is noted that the evidence adduced by the plaintiff in Re HEST Australia was broadly similar to the evidence adduced on the present application (see at [32]-[43]). APRA there appeared as amicus curiae (and there was also a contradictor appointed).

175. Button J concluded that the trustee was justified in exercising its powers under the Rules to amend the deed as proposed. Relevantly, Button J concluded that the trustee had the power under the trust deed to amend the deed in the manner proposed and that the trustee was justified in exercising the power.

176. The amendment power in the case of Re HEST Australia permitted the trustee to amend the deed if: in the reasonable opinion of the Trustee, the amendment: is in the interests of beneficiaries; and would not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class of beneficiaries.

177. Button J held that the trustee’s power to amend the deed was enlivened on the basis that it held a reasonable opinion that the proposed amendments were in the interests of beneficiaries ([68]). Her Honour went on to say (when considering the equitable and statutory obligations of the trustee in exercising its power to amend) at [[71]:

It may, at first blush, appear perverse to consider that the imposition of a trustee fee, not hitherto imposed on beneficiaries, is in their interests. However, as APRA has submitted, the impost represented by the fee is to be balanced against the implications for beneficiaries of HESTA’s actual or potential insolvency. In my view, the evidence advanced by HESTA, and not contested by the Contradictor, amply demonstrates that it is not in the interests of beneficiaries of the Plan for HESTA to have no personal capital and to be exposed to the risk of insolvency for even relatively minor penalties. In addition to the very significant direct costs that would be borne by beneficiaries (through costs being incurred by the Plan) in the event of insolvency, the very inability of a superannuation trustee to put itself in a reasonably secure prudential position is deleterious to the interests of members. Their interests lie in having a financially sound, well-managed trustee with a highly qualified Board and Executive. HESTA is justifiably concerned that the spectre of corporate insolvency may result in otherwise qualified persons being unwilling to serve as directors, and may otherwise distort decision-making at the Board level.

178. Button J held that the proposed amendment was not inconsistent with the amendments to ss 56 and 57 of the SIS Act (see at [73]-[113]), for reasons helpfully summarised by the Trustee in the present case as follows.

179. First, that the argument as to potential inconsistency with the SIS Act amendments related to the indemnification limb of those provisions, not the exemption from liability limb; and the proposed amendments did not purport to nor did they have the effect of exempting the trustee or its directors from liability ([77]).

180. Second, that the SIS Act amendments were concerned with the manner in which the “fund” is operated, not directed to what trustees do with fees they charge; that superannuation trustees can and do charge fees for their services; and that once a person owns assets, then if the person becomes liable to a penalty, those assets will be available to answer the liability ([81]-[83]).

181. Third, that the fact that a trustee, having exercised a fee charging power to accumulate capital, may use that capital to pay a penalty did not mean that the “rule” which enabled it to take the fee “would have the effect of indemnifying” it for the amount of a penalty ([84]). As to this, her Honour explained that the reason lay in the nature of indemnification ([84]); that a defining feature of the trustee’s right to indemnity involved the economic burden not being borne by the trustee ([88]); the right of indemnity involved both a right of recoupment and exoneration ([89]); and that a trustee’s right of indemnity was against the assets of the trust, carrying with it an interest in the property of the trust ([90]) and was occasioned by and coextensive with a liability properly incurred ([91]).

182. Fourth, that the distinction between the trustee’s personal funds and the assets of the trust was fundamental to the concept of an indemnity in the trust context ([91]); and that the trustee’s power to reserve property pending determination of a contingent liability did not permit a trustee to take trust assets and hold them just in case some liability may in future materialise ([92]).

183. Fifth, that the effect of the proposed new rule was to enable HEST Australia to charge a fee to accumulate a fund to be held personally by it; that the mere inclusion in the trust deed of a power to charge a fee went no further than that; and that the charging of a fee did not involve the trustee exercising any right of recoupment or exoneration whether crystallised or contingent; nor did it involve a trustee reserving trust assets in support of its equitable lien or charge ([93]).

184. Finally, that ss 56 and 57 of the SIS Act were concerned with the effect of governing rules, not the purpose of a trustee’s desire to amend the rules or the use to which the trustee may put the fees, once earned as income ([99]-[103]).

185. The Trustee here relies upon Button J’s reasoning process in support of its own application, in addition to the submissions already made on this point.

186. As to whether the proposed amendments were inconsistent with other terms of the trust deed, which turned on whether the proposed new fee charging provision was a power that “exempted” the trustee from liability or “indemnified” the trustee in respect of liabilities, Button J held that it was not ([118]). The Trustee says that the same conclusion would apply to any argument in the present case about inconsistency between the exemption and indemnity provisions in the present trust deed and the proposed amendment (referring to Fund Rule 11.2).

187. The Trustee also refers to the following additional matters considered by Button J in connection with HEST Australia’s application. First, that her Honour accepted that the “bargain” between the trustee and its members would be altered by the proposed amendments but found that this was an unavoidable consequence of charging fees in order to obtain capital to guard against the risk of insolvency (her Honour noting that the change was not one-sided but, rather, was designed to avoid the consequences of insolvency which would be very damaging for beneficiaries (see at [120]). Second, that her Honour held that the potential for the Trustee Capital Reserve to be used to fund payment of penalties which were not “inadvertent and honest” was not a reason to decline to provide the advice because it was difficult to see how HEST Australia’s board could in practice make a personally held fund available to meet some but not other penalties and that there could be no a priori assumption that the interests of members would be better served by the trustee becoming insolvent than by it being able to meet a penalty. Third, that matters relating to the fees were matters which would be exposed to member scrutiny ([122]-[124]).

188. Thus the Trustee submits that the reasons for decision in Re HEST Australia are supportive of the present application.

Re Care Super

189. By contrast, in Re Care Super, a case that was not solely concerned with judicial advice in relation to the trustee fee, Lyons J declined to grant the application on the basis of a disconformity between the judicial advice sought and the evidence before the Court. The Trustee says that this decision is of less relevance to the present application for the reasons set out below.

190. It is noted that the relevant issue in Re Care Super related to whether the trustee of Care Super, was justified in determining, pursuant to an express remuneration clause, a fee for services by reference to “among other relevant considerations, a risk of a statutory liability in light of the SIS amendments” [emphasis as per Trustee’s submissions] (Re Care Super at [120]). The remuneration clause provided:

The Trustee, any person on the Board of Directors of the Trustee and any member of a Committee appointed pursuant to sub-clause 2.5 hereof may be remunerated for the bona fide provision of services to the Fund on such basis as the Trustee determines to be fair and reasonable.

191. Lyons J’s reasoning was to the effect that the Court will not exercise its discretion to provide advice unless the evidence discloses that the trustee had resolved to, or intended to, act in accordance with that advice ([195]). The judicial advice sought was whether the trustee was justified to pay and advance out of the Fund an amount in respect of its provision of services as trustee of the Fund, on the basis that it is fair and reasonable to determine that amount “by having regard to, among other relevant considerations, a risk that the plaintiff might incur” statutory liabilities (emphasis added) ([4]). His Honour was not satisfied, on the evidence before him, “that the fee determination has been determined by the plaintiff by reference to, among other things, the risk that the plaintiff might incur a statutory liability” [emphasis in original] ([196]); rather, it appeared that the assessment of the amount of the fee determination was made having regard only to the risk of a statutory liability and not having regard to other matters ([196]). Thus his Honour was not satisfied that the trustee had acted or intended to act in accordance with the judicial advice sought ([196]).

192. The Trustee notes that his Honour recorded in the reasons that he had given much thought to whether he should decline to provide judicial advice on this basis ([197]); that his Honour had indicated to the plaintiff's counsel, at the commencement of oral argument, “that the judicial advice sought was appropriate” but that he was concerned that the evidence appeared to be inconsistent with the judicial advice sought ([198]); and that his Honour was informed that the trustee did not intend to amend the nature of the judicial advice sought ([198]).

193. The Trustee says that it is also apparent from the decision that APRA had suggested possible amendments to the judicial advice which should be sought but that the trustee did not seek to amend ([200], fn 45). His Honour noted that the reason for the disconformity between the judicial advice sought and the evidence had not been adequately explained ([199]-[200]); and, in the circumstances, declined to exercise his discretion to provide the judicial advice sought ([202]). Thus, the Trustee says that the primary issue in Re Care Super was determined on a very narrow, technical basis; and hence the decision is of little assistance in the present application.

194. The Trustee does, however, point out that Lyons J held (consistently with Re QSuper) that the fee proposal (to charge fees to build up a reserve which could be drawn on in the event that a trustee becomes exposed to a non-indemnified statutory liability) was not inconsistent with the amendments to ss 56(2) and 57(2) of the SIS Act (see [173]-[176]). Not surprisingly, the Trustee embraces this part of his Honour’s findings and reasoning process.

Application for confidentiality orders

195. In support of the Trustee’s application for orders protecting the confidentiality of certain information contained in the application, reliance was placed upon an affidavit sworn 26 November 2021 of Geoffrey Hans Sanders sworn 26 November 2021; the evidence in question being identified in Annexure A to Mr Sanders’ affidavit.

196. The Trustee here invokes the inherent jurisdiction of the Court to regulate the conduct of proceedings before it (John Fairfax & Sons Pty Ltd v Police Tribunal of New South Wales (1986) 5 NSWLR 465 at 479), which power extends to protecting confidential information from inappropriate disclosure in the course of litigation (the Trustee here referring by way of example to Kimberley Mineral Holdings Ltd (In Liq) v McEwan [1980] 1 NSWLR 210).

197. It is noted that an instance of the exercise of that power is to preserve the confidentiality of material relied upon by an applicant for judicial advice (see Re Perpetual Investment Management Ltd [2014] NSWSC 784 at [5] per Robb J).

198. The Trustee notes that an application for judicial advice is an unusual process because, by its very nature, it involves private advice often in circumstances where the trustee must, of necessity, disclose confidential material to the Court, pointing to what was said in Re Application of Perpetual Trustee Co Ltd [2003] NSWSC 1185 by Young CJ in Eq, as his Honour then was (at [14]):

The jurisdiction is very peculiar because the primitive sort of application under s 63 was made by the trustee to the court usually sitting in private chambers. The Judge received a statement of facts rather than affidavit evidence. The Judge usually read those papers in chambers because there would usually be a large amount of sensitive information in the statement of facts. For instance, when the court was considering whether the Trustee would be justified in settling litigation, the court would have to be informed of all the difficulties in the Trustee’s case, as well as counsel’s advice and a whole host of other matters which, if the court did not give the advice and it became known to the other party in the litigation, would affect it commercially. Likewise, the court in commercial matters involving takeovers or otherwise would be told information which was very commercially sensitive. Furthermore, the general rule was that a Judge who had given advice would not hear any contentious application which involved the matter, because he had been privy to information which may not be public.

199. The Trustee submits that in the circumstances, on an application for judicial advice, the usual principle of open justice must, of necessity, be applied in a way which accommodates the protection of privileged, confidential and commercially sensitive information. It is said that, were this not the case, trustees would be placed in the invidious position of choosing between bringing an application in the knowledge that commercially sensitive information would become public, to the possible detriment of the trust and its beneficiaries, or not bringing an application where it was appropriate to do so. Alternatively, it is said that trustees might be tempted to limit the amount of commercially sensitive material disclosed to the Court with the consequence that the Court would not receive all appropriate information and the protection which judicial advice is designed to provide would be diminished.

200. Mr Sanders in his affidavit has identified the nature of the information contained in the relevant parts of the evidence and the two bases upon which orders preserving the confidentiality of that material are sought (namely, legal professional privilege and commercial sensitivity).

201. As to the claim based on legal professional privilege, this relates to the opinion of counsel and I accept that this (item 1) is plainly privileged and, as is the ordinary course on a judicial advice application, its confidentiality should be preserved.

202. As to the claim based on commercial sensitivity, this relates to a number of items of evidence said to contain information that is confidential and commercially sensitive (see Mr Sanders’ affidavit at [10]).

203. Mr Sanders has deposed that items 9, 11, 12 and 31 contain information about the Trustee’s insurance arrangements which is not public and which, if disclosed, would compromise the Trustee’s commercial position in future negotiations concerning insurance contracts, adversely affecting members’ interests (see Mr Sanders’ affidavit at [13]).

204. Mr Sanders has deposed that item 20 (and by extension items 2, 14 and 15, which set out information contained in item 20) and items 21, 22, 23, 27, 35 and 36 are documents internal to the Trustee which are not public and are commercially sensitive in that they comprise the Trustee’s intellectual property and set out internal strategic matters of the Trustee. It is said that the disclosure of these documents to the Trustee’s competitors may place the Trustee at a commercial disadvantage and thus adversely affect members (see Mr Sanders’ affidavit at [16]).

205. As to items 4, 7, 8, 17, 19 and 34, Mr Sanders has identified that these detail deliberations over matters of commercial strategy, where decisions on the relevant issues have not yet been taken, which information is not public. Mr Sanders has deposed that, if disclosed, it could put the Trustee at a commercial disadvantage, or cause inaccurate or incomplete media speculation, and thus adversely affect members (including by members exiting the Fund, to the disadvantage of remaining members) (see Mr Sanders’ affidavit at [19]-[20]).

206. Mr Sanders has identified that items 3, 6 and 18 contain confidential information concerning the Trustee’s engagement with APRA. Again, this information is not public and Mr Sanders has deposed that, if disclosed, this could create inaccurate or incomplete media speculation and prompt exits from the Fund, with adverse cost consequences for remaining members (see Mr Sanders’ affidavit at [23]).

207. As to item 24 (together with items 5 and 16 which set out information contained in item 24) and items 26, 29 and 30, it is noted that these contain information from reports and opinions obtained by the Trustee in support of this application. Mr Sanders has deposed that the relevant items contain information which is not public and is commercially sensitive in that it details the Trustee s internal matters, including in relation to its financial position, taxation and compliance arrangements. It is said that disclosure of this information may place the Plaintiff at a disadvantage vis a vis its competitors, causing financial harm to the Fund and members (see Mr Sanders’ affidavit at [26]).

208. Finally, items 25, 33 and 37 are Board materials of the Trustee and associated documents, which are not public. It is said that these are commercially sensitive in that their disclosure may place the Trustee at a commercial disadvantage and thereby adversely affect members.

209. The Trustee notes that, as a regulated superannuation entity, and as a trustee at general law, it has prescriptive and onerous disclosure obligations and has sophisticated systems in place to comply with those obligations (referring to Mr Robertson’s 12 November 2021 affidavit at [70]-[71] (CB 256) and Ms Briggs’ 16 November 2021 affidavit at [31]-[35] (CB 1700).

210. It is submitted that it would be inappropriate if, by virtue of its coming to the Court for judicial advice on a course of conduct proposed in the interests of members, the Trustee were required to make disclosures of information beyond what its statutory and general law obligations require, especially where there is a risk that those disclosures would be adverse to members’ interests.

211. The Trustee says that it has taken steps to ensure that it seeks orders only and strictly in respect of material disclosure of which would be inappropriate. In particular it has reviewed the schedule of information in respect of which orders are sought and removed material which is bound to become public (by virtue of the Trustee’s statutory disclosure obligations, namely the amounts of the Trustee Fee and Cap on Trustee Capital) and material which is not confidential. Items removed from the revised schedule which had been included in the original schedule are struck through in Annexure A.

212. The Trustee also seeks to protect information confidential to its information broker (IFS Insurance Solutions) from disclosure. Items 4 and 13 contain information that is not public, and is commercially sensitive in that its disclosure may place IFS Insurance Solutions at a commercial disadvantage by allowing competitors access to IFS Insurance Solutions’ intellectual property (see Mr Sanders’ affidavit at [32]).

213. Items 28 and 32 are marked as confidential in Mr Robertson’s affidavit, but the claim to confidentiality of those materials is not pressed (see Mr Sanders’ affidavit at [33]).

214. The Trustee prepared versions of the application materials redacting the confidential information identified in Annexure A, in respect of which it indicated there would be no objection to access.

215. The Trustee submitted at the hearing that orders under the inherent jurisdiction (rather than under the Suppression Orders Act) would be are appropriate but indicated that, to the extent necessary, it would make an application under the Suppression Orders Act.

216. On the issue of confidentiality insolvency, APRA raised for consideration the open justice principle, noting that in Hogan v Hinch (2011) 243 CLR 506; [2011] HCA 4 (at [20]) French CJ said:

An essential characteristic of courts is that they sit in public. That principle is a means to an end, and not an end in itself Its rationale is the benefit that flows from subjecting court proceedings to public and professional scrutiny. It is also critical to the maintenance of public confidence in the courts. Under the Constitution courts capable of exercising the judicial power of the Commonwealth must at all times be and appear to be independent and impartial tribunals. The open-court principle serves to maintain that standard. However, it is not absolute.66

217. APRA accepts there is jurisdiction to make orders which would maintain the confidentiality of the material. It simply notes that whether that jurisdiction is exercised will involve weighing the nature of the confidential factual material and the impact its disclosure might have on the Trustee or the Fund against the normal requirement that evidence deployed in legal proceedings is deployed openly.

Determination

218. In the present case, the proposed amendments are in the following terms:

Schedule

Insert the following definitions in Fund Rule 2.1:

“Reference Period” has the meaning given to it in Fund Rule 11.7.

“Review Period has the meaning given to it in Fund Rule 11.7.

“Trustee Capital” has the meaning given to it in Fund Rule 11.7.

“Trustee Fee” has the meaning given to it in Fund Rule 11.7.

1.   Insert the following Fund Rule after Fund Rule 11.6:

11.7   Trustee Fee

(a)   For each Reference Period, a Trustee Fee is payable out of the Fund to the Trustee for acting as Trustee in an amount equal to 0.30% of the net assets of the Fund (calculated as at the end of the day immediately prior to the commencement of the relevant Reference Period).

(b)    The Trustee Fee is to be paid in such periodic instalments and in such manner as determined by the Trustee from time to time.

(c)   Despite anything in this Fund Rule 11.7:

(i)    the Trustee may not pay any proportion of the Trustee Fee where the Trustee determines that, in the event of such proportion being paid, the Trustee Capital would exceed the greater of:

(A)   0.50% of the net assets of the Fund as at the payment date; and

(B)   such maximum amount (if any) of Trustee Capital as the Statutory Requirements or Prudential Standards require or as a Regulator permits, recommends, requests or directs the Trustee to hold; and

(ii)    the Trustee may determine in its absolute discretion to reduce, waive, suspend or postpone the Trustee Fee (or any part of it) and, subject to Fund Rule 11.7(c)(i), to cease such reduction, waiver, suspension or postponement.

(d)    The Trustee must, as soon as practicable after the end of each Review Period (and in any event not later than six months after the end of the Review Period):

(i)   consider whether the Trustee Fee payable under Fund Rule 11.7(a) and/or by reason of the operation of Fund Rule 11.7(c)(i)(A) remains fair and reasonable; and

(ii)    in the event that the Trustee considers, pursuant to Fund Rule 11.7(d)(i), that the Trustee Fee payable under Fund Rule 11.7(a) and/or by reason of the operation of Fund Rule 11.7(c)(i)(A) is no longer fair and reasonable:

(A)   determine what amount would, in its opinion, be fair and reasonable (whether that amount is higher or lower than the existing Trustee Fee payable under Fund Rule 11.7(a) and/or by reason of the operation of Fund Rule 11.7(c)(i)(A); and

(B)   amend this Deed by adjusting the figures in Fund Rule 11.7(a) and/or Fund Rule 11.7(c)(i)(A) to accord with the determination in Fund Rule 11.7(d)(ii)(A).

(e)    For the purposes of the Trustee’s determination in clause Fund Rule 11.7(d), the Trustee:

(i)   must have regard to the advice of an appropriately qualified independent consultant; and

(ii)   may (without limitation) have regard to the amount which the Trustee reasonably considers necessary to appropriately compensate the Trustee for acting as trustee of the Fund and/or the amount which the Trustee reasonably considers to appropriately compensate it for the personal financial risk it might incur in connection with its role as trustee of the Fund.

(f)    For the purposes of this Fund Rule 11.7, a reference to:

(i)   “Reference Period” is to each successive period of three financial years with the first Reference Period being the period of three financial years commencing on 1 July 2021;

(ii)   “Review Period” is to each successive period of three financial years with the first Review Period being the period of three financial years commencing on 1 July 2021;

(iii)   “Trustee Fee” is to a fee payable under this Fund Rule 11.7; and

(iv)   “Trustee Capital” is to the total value of net tangible assets of the Trustee in its personal capacity as calculated in accordance with Australian accounting standards.

219. For the reasons submitted by the Trustee, I accept that the jurisdiction to give judicial advice is here applicable.

220. As indicated above, I accept that, for the reasons given by Kelly J in Re QSuper, and as accepted by APRA, the proposed amendment is not precluded by the amendments to the SIS Act. I further accept that a relatively broad and practical approach should be adopted when assessing whether the proposed amendment is in the best financial interests of the members (see [26] of Re QSuper).

221. There is an obvious point of distinction (which was acknowledged by the Trustee) between the position in the present case and that in Re QSuper by reference to the confidential matters referred to in the Trustee’s submissions. Nevertheless, while that heightens the potential for a conflict of interest on the present application, it does not gainsay the proposition that the consequences for the members of insolvency on the part of the Trustee would be very serious (as is evident from the material adduced on the present application).

222. I have taken into account the submissions by the Trustee and by APRA both as to the view taken by the Trustee and the advice it has received (as referred to above) and as to the additional issue raised in APRA’s confidential submissions. I have concluded that, balancing the respective risks and interests, it is not in the best financial interests of members of the Fund to be exposed to the risk of insolvency of the Trustee (nor is it in the their interests that qualified and professional directors may decline to be exposed to the risk of personal insolvency if the Trustee is not able to establish a pool of funds from which liability for financial penalties may be met). I am also satisfied that the conditions to be placed on the proposed fee (its capping and the provisions for review) have the effect that the fee will be fair and reasonable in all the circumstances. I consider that the potential risk of an excess capital pool (which may not materialise) should be addressed at the time that any such potential risk becomes likely to materialise (which would be when a relevant decision is made by the Trustee).

223. Further, I do not consider that the fact that the matters that the Trustee has been considering (as referred to in the confidential submissions) affects this conclusion, for the reasons put forward by the Trustee in its submissions.

224. There is obviously a high degree of responsibility required of the Trustee having regard to the size of the Fund, its membership and the complexity of work involved in its administration. The risk of future liabilities (including strict liability potentially arising in the absence of any intentional misconduct) not being able to be met by the Trustee in its present situation is obvious, as is the risk of financial detriment to members if the Trustee cannot meet such liabilities and were to become insolvent. The Trustee presently has no right to receive remuneration and no ability to generate resources out of is own funds to insure against potential future liabilities of the kind here considered. I consider that the conclusion reached by Kelly J in Q Super (at [38]) is thus equally applicable in the present case.

225. I am also persuaded that the material in respect of which confidentiality orders have been sought is indeed confidential and commercially sensitive (and in the case of Counsel’s opinion privileged) and that, notwithstanding the fundamental importance of the principle of open justice, it is in the interests of the administration of justice that trustees be able to provide material of this kind on a confidential basis when seeking judicial advice on issues which have the potential to be detrimental to the interests of the beneficiaries or members of the relevant trust.

Orders

226. 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) is that the plaintiff would be justified in amending the trust deed of Maritime Super (the Fund) in the manner set out in the Draft Deed of Amendment (which is exhibited to the affidavit affirmed by Peter Victor Robinson on 12 November 2021 (Draft Deed of Amendment).

2. Order that the plaintiff’s 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 in [227]).

4. Pursuant to s 12 of the Act, the suppression order in order 3 above operates until the termination of the Trust Deed dated 6 October 1967 constituting the Fund known as Maritime Super or further order of the Court.

5. Pursuant to s 11 of the Act, order that 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 APRA’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 above.

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 APRA in these proceedings.

Documents means:

1. documents or parts of documents which are identified in items 1 to 37 (excluding items 28 and 32) of the materials identified in annexure A to the affidavit affirmed 26 November 2021 of Geoffrey Hans Sanders; and

2. Confidential Annexure A to the written submissions dated 30 November 2021 filed by APRA.

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Decision last updated: 16 December 2021