Application by SCS Super Pty Limited atf Australian Catholic Superannuation and Retirement Fund

[2022] NSWSC 686

Supreme Court

New South Wales

Medium Neutral Citation:

Application by SCS Super Pty Limited atf Australian Catholic Superannuation and Retirement Fund [2022] NSWSC 686

Hearing dates:

4 May 2022

Date of orders:

27 May 2022

Decision date:

27 May 2022

Jurisdiction:

Equity

Before:

Hallen J

Decision:

See [157]

Catchwords:

EQUITY –Trusts and trustees – Judicial advice under s 63 of the Trustee Act 1925 (NSW) – Where proposed amendment to Trust Deed to give trustee power to insert trustee remuneration clause – Where application responds to recent changes to legal and regulatory environment and is sought to enable trustee to meet potential liabilities against it and its directors – Where trustee is not-for-profit company with nominal capital – Whether proposed amendments consistent with recent amendments to ss 56(2) and 57(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) and duties of the trustee.

SUPERANNUATION – Private Sector Funds – Amendment of Trust Deed

Legislation Cited:

Corporations Act 2001 (Cth) ch 7

Court Suppression and Non-publication Orders Act 2010 (NSW) ss 6, 8(1), 10, 11-12

Financial Accountability Regime Bill 2021 (Cth)

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

Superannuation Industry (Supervision) Act 1993 (Cth) ss 10, 29D, 52(2)(c), 52(8)(b), 52A(2)(c), 56(2), 57(2), 67, 89, 93(3)(a), 103, 105, 120(2), 126K, 133, 134

Trustee Act 1925 (NSW) ss 59(4), 63, 81, 93

Uniform Civil Procedure Rules 2005 (NSW) (UCPR), rr 55.2, 42.25

Cases Cited:

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

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

Application by Motor Trades Association of Australia Superannuation Fund Pty Ltd atf Spirit Super [2021] NSWSC 1672

Application by NGS Super Pty Ltd atf NGS Super [2021] NSWSC 1694

Application by United Super Pty Ltd atf Construction and Building Unions Superannuation Fund [2021] NSWSC 1679

AustralianSuper Pty Ltd v McMillan [2021] SASC 147

Breen v Williams (1994) 35 NSWLR 522

Bropho v Tickner (1993) 40 FCR 165

Corporate Affairs Commission v Bradley [1974] NSWLR 391

Coulthard v State of South Australia (Adnyamathanha, Ngadjuri and Wilyakali Overlap Claim) [2018] FCA 2094

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

Kabushiki Kaisha Sony Computer Entertainment v Stevens (2001) 116 FCR 490; [2001] FCA 1379

Levy v The State of Victoria (1997) 189 CLR 579; [1997] HCA 31

Longboat Holdings Groupno3 v Zacole Pty Ltd [2021] VSC 280

Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2006) 66 NSWLR 112; [2006] NSWCA 160

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

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

Re Care Super Pty Ltd [2021] VSC 805

Re Care Super Pty Ltd (No 2) [2021] VSC 854

Re Equititrust Ltd (In Liq) (Receiver Appointed) (Receivers & Managers Appointed) [2016] NSWSC 1936

Re Hest Australia Ltd [2021] VSC 809

Re Medical Assessment Panel; ex parte Symons [2003] WASC 154

Re QSuper Board [2021] QSC 276

Roadshow Films Pty Ltd v iiNet Limited (2011) 248 CLR 37; [2011] HCA 54

Stein v Sybmore Holdings [2006] NSWSC 1004

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

Tribal Health Pty Ltd v Flush Fitness Pty Ltd [2016] QSC 103

Category:

Principal judgment

Parties:

SCS Super Pty Limited as trustee of the Australian Catholic Superannuation and Retirement Fund (ABN 74 064 712 607) (Plaintiff)

Australian Prudential Regulation Authority (amicus curiae)

Representation:

Counsel:
D Hogan-Doran SC with E Phelan (Plaintiff)
D J Doyle QC with D Allen (APRA as amicus curiae)

Solicitors:
MinterEllison (Plaintiff)

File Number(s):

2022/67811

Publication restriction:

As set out below

Judgment

The Proceedings

1. The Plaintiff, SCS Super Pty Ltd (the Trustee), is the current trustee of a registrable superannuation entity known as the Australia Catholic Superannuation and Retirement Fund (the Fund), an industry superannuation fund that was constituted by a Trust Deed dated 30 June 1981, as amended from time to time (the Trust Deed).

2. In summary, in the Summons filed on 9 March 2022, the Trustee seeks the opinion, advice, or direction, of the Court under s 63 of the Trustee Act 1925 (NSW) (the Act), or alternatively, the Court’s inherent jurisdiction, that the Trustee would be justified in amending the Trust Deed to insert a trustee remuneration clause. (The Summons was subsequently amended but the principal relief was not significantly altered.)

3. The application is brought in response to changes in the regulatory and operating environment in which the Trustee, its directors, and the Fund, operate, following changes to the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) that relate to the indemnification of trustees, and directors of trustees, which changes took effect on 1 January 2022.

4. The application is similar to a number of applications made by other superannuation trustees in NSW, and in other States: see for example, Application by United Super Pty Ltd atf Construction and Building Unions Superannuation Fund [2021] NSWSC 1679 (Henry J) (United Super); Application by NGS Super Pty Ltd atf NGS Super [2021] NSWSC 1694 (Henry J) (NGS); Application by Maritime Super Pty Ltd atf Maritime Super [2021] NSWSC 1614 (Ward CJ in Eq) (Maritime Super); Application by LGSS Pty Ltd atf Local Government Super [2021] NSWSC 1613 (Ward CJ in Eq) (LGSS); Application by Motor Trades Association of Australia Superannuation Fund Pty Ltd atf Spirit Super [2021] NSWSC 1672 (Henry J) (Spirit Super); Re QSuper Board [2021] QSC 276 (Kelly J) (QSuper); Re Hest Australia Ltd [2021] VSC 809 (Button J) (Hest); Re Care Super Pty Ltd (No 2) [2021] VSC 854 (Lyons J) (Care Super (No 2)); AustralianSuper Pty Ltd v McMillan [2021] SASC 147 (Blue J) (AustralianSuper).

5. (Senior counsel for the Trustee submitted that the application made in QSuper and the application made in NGS, were the most similar to the application in this case in respect of the clause that was proposed in that in both applications a reasonable fee was the essence of the proposed clause to be introduced: Tcpt, 4 May 2022, p 31(15-19).)

6. The principal reason for bringing the application for judicial advice is the recognition, by the Trustee, that its proposal to vary the Trust Deed may give rise to a conflict, or apparent conflict, between the interests of the Trustee and its directors, and its, and their duty to members of the Fund.

7. In the Summons, there was no Defendant named. However, as a registrable superannuation entity, the Fund is regulated by the Australian Prudential Regulation Authority (APRA). It is an independent statutory authority that supervises institutions across banking, insurance, and superannuation, and it is accountable to the Australian Parliament. APRA was, therefore, notified of the application.

8. On 30 March 2022, without opposition from the Trustee, the Court granted leave to APRA to appear at the hearing as amicus curiae. (In so doing, it was not assumed that the Trustee was not prepared to assist the Court in arriving at the correct determination of the case.)

9. There was a degree of urgency in having the matter heard, as certain legislative changes, to which I shall refer, relating to the indemnification of trustees, and directors of trustees, of superannuation funds, became operative on 1 January 2022. Those changes caused concerns about the exposure of the Trustee, and its directors, to personal liabilities, including pecuniary fines and penalties which might be imposed in the course of its, or their duties in relation to any contravention of Commonwealth laws for which they will not be indemnified by the Fund. Such exposure, in turn, is said to give rise to potential disadvantages for members in terms of the potential insolvency of the Trustee.

10. As is the practice in judicial advice applications, the Trustee has provided the Court with confidential opinions from Counsel.

11. In summary, for the reasons that follow, I have determined that the Court should provide judicial advice under s 63 of the Act to the Trustee that it would be justified in amending the Trust Deed as is proposed in the amended Summons to which I shall refer.

12. Unsurprisingly, there was material read on the application, identified as confidential, and commercially sensitive, which has also been read. Submissions were made by the Trustee, and by APRA, on the question whether the evidence should be permitted to be kept confidential even though all of it has now been provided to APRA (albeit on a confidential basis).

13. 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), or, alternatively, that such orders should be made in the inherent jurisdiction of the Court. These reasons, therefore, will not refer, expressly, to the confidential material, even though I have taken it into account. (It has been read (Ex 3) and considered and will be retained on the Court file subject to the confidentiality orders).

14. At the conclusion of the hearing, the Court discussed the form of orders that would be made pending further order. Without opposition from APRA, the following order was made:

Orders, until further order, that pursuant to s 10 of the Court Suppression and Non-Publication Orders Act 2010 (NSW) that confidential Exhibit 3 not be disclosed on the ground that the order is necessary to prevent prejudice to the proper administration of justice or otherwise necessary in the public interest for the order to be made which public interest significantly outweighs the public interest in open justice.

15. The matter was listed for hearing on 4 May 2022 with an estimated duration of 1 day. Ms D Hogan-Doran SC, with Ms E Phelan of counsel, instructed by Mr M Girgis, Mr D Taylor, Ms J Street and Ms S Wells, of MinterEllison, Solicitors, appeared for the Trustee. Mr B Doyle QC, with Mr D Allen of counsel, instructed by Mr T Owen-Taylor and Ms M Graham, appeared for APRA.

16. (In the events that happened, a late request for senior counsel for APRA to appear remotely using Microsoft Teams, and make submissions, was made, and without opposition, was granted by the Court. This did not cause any inconvenience to the Court or otherwise.)

17. Counsel have provided the Court with detailed written submissions, which were supplemented by oral submissions at the hearing. I have been greatly assisted by the submissions, which, supported by the evidence, have laid the factual platform for these reasons. I wish to commend all of the legal representatives for her, and his, diligence and effort, the timely provision of the submissions, and also for the general way in which the case was presented at the hearing. There is little doubt they have acted co-operatively with each other in ensuring the proceedings were dealt with in a just, quick and cheap manner, and with a view to resolving the real issues in dispute.

The role of an amicus curiae

18. APRA has appeared in the role of amicus curiae in a number of the cases that were relied upon, and referred to above, including Maritime Super and LGSS.

19. An amicus curiae is not a party to the proceedings. By definition, it, he or she, is a stranger to the litigation and does not have any rights, or interests, affected by the litigation. (In this case, it was not submitted that APRA was entitled to appear, as of right, or by leave, as an intervener, in the proceedings.)

20. The power of courts to permit amicus curiae appearances is well established throughout the common law world: Breen v Williams (1994) 35 NSWLR 522 at 533 (Kirby P). There is no prescription of the circumstances in which it may, or may not, be proper for a Court to hear an amicus. It is well-established that if it is in the interests of justice to do so, the Court may permit an amicus curiae to participate in the proceedings: Kabushiki Kaisha Sony Computer Entertainment v Stevens (2001) 116 FCR 490; [2001] FCA 1379 at [11] (Sackville J).

21. Also, a further consideration is one of utility. The Court should be satisfied that it would be significantly assisted by the submissions of the amicus and that any costs to the parties, or any delay consequent upon agreeing to hear the amicus, is not likely to be disproportionate to the expected assistance: Roadshow Films Pty Ltd v iiNet Limited (2011) 248 CLR 37; [2011] HCA 54 at [4].

22. The principal role of an amicus curiae was explained by Brennan CJ in Levy v The State of Victoria (1997) 189 CLR 579 at 604-605; [1997] HCA 31. It is to provide assistance to the Court:

“The hearing of an amicus curiae is entirely in the Court's discretion. That discretion is exercised on a different basis from that which governs the allowance of intervention. The footing on which an amicus curiae is heard is that that person is willing to offer the Court a submission on law or relevant fact which will assist the Court in a way in which the Court would not otherwise have been assisted. In Kruger v The Commonwealth, speaking for the Court, I said in refusing counsel's application to appear for a person as amicus curiae:

As to his application to be heard as amicus curiae, he fails to show that the parties whose cause he would support are unable or unwilling adequately to protect their own interests or to assist the Court in arriving at the correct determination of the case. The Court must be cautious in considering applications to be heard by persons who would be amicus curiae lest the efficient operation of the Court be prejudiced. Where the Court has parties before it who are willing and able to provide adequate assistance to the Court it is inappropriate to grant the application.

It is not possible to identify in advance the situations in which the Court will be assisted by submissions that will not or may not be presented by one of the parties nor to identify the requisite capacities of an amicus who is willing to offer assistance. All that can be said is that an amicus will be heard when the Court is of the opinion that it will be significantly assisted thereby, provided that any cost to the parties or any delay consequent on agreeing to hear the amicus is not disproportionate to the assistance that is expected.” (Omitting citations)

23. In Bropho v Tickner (1993) 40 FCR 165 at 172-173, Wilcox J observed, citing Corporate Affairs Commission v Bradley [1974] NSWLR 391 at 399, that an amicus curiae has no entitlement to lead evidence. His Honour added, with some reservation, that he did not dispute that “it may sometimes be appropriate to allow an amicus curiae to complete the evidentiary mosaic by tendering an item of non-controversial evidence”.

24. In Re Medical Assessment Panel; ex parte Symons [2003] WASC 154, E M Heenan J wrote at [18]:

“…The role of the amicus, as his name suggests, is to assist the court by ensuring that the court is properly informed of matters which should be taken into account in reaching its decision and this may well be of assistance to the court where the litigation involves an important question of law affecting persons other than the parties, especially disadvantaged persons. It is often a convenient course to allow an address by an amicus curiae where one of the parties to the litigation or appeal is unable or unwilling to arrange for legal representation, or where they may be no contradictor to ensure that opposing arguments are brought to the attention of the court: Dobree v Hoffman (1996) 18 WAR 36. However, an amicus curiae does not become a party to the proceedings and may not appeal: Day v Day [1957] P 202; Corporate Affairs Commission v Bradley [1974] 1 NSWLR 391 at 396 and 399. The latter decision was cited, with evident approval, by Dawson J in Levy v The State of Victoria (1997) 189 CLR 579 at 604 - 605. As there is no right of appearance it is entirely for the court to decide whether or not an amicus curiae should be heard and, if so, to what extent and on what aspects of the case: Brandy v Human Rights and Equal Opportunity Commission (1995) 183 CLR 245 at 258.”

25. His Honour at [20], also observed that:

“Without excluding the possibility that there may occasionally be a case which may justify the course, my reading of the authorities leads me to the conclusion that it will be a rare and exceptional case in which an amicus curiae is permitted to adduce evidence or raise a special defence. The disinclination of the court to allow such a role is consistent with the rule that, in litigation in which only the rights of the contesting parties are affected, the cause should be accepted and decided by the court on the issues and upon the evidence which the parties themselves present for decision.”

26. In Coulthard v State of South Australia (Adnyamathanha, Ngadjuri and Wilyakali Overlap Claim) [2018] FCA 2094, White J, at [9], noted that “the position of an amicus is very different from that of an intervener in that, amongst other things, an amicus cannot file interlocutory process or commence an appeal or otherwise take exception to a ruling of the Court”.

27. In the Plaintiff’s Outline of Submissions, counsel stated at [8]:

“The Trustee anticipates that APRA could assist the Court by identifying the legal principles and the discretionary considerations which, in APRA’s view, bear upon the decision whether to grant the relief sought in the application.”

28. For its part, in written submissions, APRA stated at [17]:

“… APRA’s intention is to assist the Court as an amicus curiae by identifying the legal principles and the discretionary considerations which, in APRA’s view, bear upon the decision whether to grant the relief sought in the Application. Litigation involving statutes of wide public importance often calls for the participation of the regulator, who will often perceive the application of the statute distinctly.”

29. In his oral submissions, senior counsel noted (Tcpt, 4 May 2022, p 45(36)-46(7):

“APRA has, of course, been granted permission to appear as amicus. We see our role as to identify the legal principles which will guide your Honour in the exercise of your discretion under s 63 of the Act and to assist you by drawing to the Court’s attention any aspects of the case which might otherwise be overlooked. Consistent with that approach, we have done so in our submissions by articulating where we thought proper concerns which the Court might entertain rather than adopting an adversarial approach by way of opposition or otherwise.

The other side of that coin is that where we have expressed no concern about an aspect of the proposal, that is subtly different from a positive endorsement of the proposal for the reason that I gave before lunch, namely that APRA considers it’s appropriate to preserve a degree of neutrality in relation to these various applications for many reasons, including that under s 58 and 59 of the Superannuation Industry Supervision Act it’s critical that trustees themselves act personally in exercising discretion consistent with the equitable principles that your Honour would be well familiar with and in no sense can the task be delegated or subcontracted to a regulator. I don’t for a minute suggest that’s what’s happened here but I just want to put in proper frame of reference that APRA has been providing its submissions in respect of at all times proposal by the trustee.”

30. The submissions made are well justified as the Court has been substantially assisted by the submissions made by APRA in relation to the consideration of the issues. APRA’s stated intention in performing its role has also been achieved.

Notice to Members

31. The only persons who could be directly affected by the application are the members of the Fund. They have not been given notice of the application. As will be read, the question of notice to members was raised by the Court prior to the hearing.

31. In Supplementary written Submissions, counsel wrote (Plaintiff’s Supplementary Outline of Submissions dated 2 May 2022):

“9   In relation to whether any notice should be given by the plaintiff to its members before any advice is provided by the Court, the Trustee submits that it was not required to individually notify each individual member of the Fund of this application for the following reasons:

(a)   the board of the Trustee consists of equal numbers of employer representatives and member representatives;

(b)   member representatives may be nominated by the members of the Fund or a trade union or other organisation representing the members of the Fund;

(c)   every 4 years, the Trustee facilitates an election by the members of the Fund for the purposes of determining directors who are to be appointed as member representatives on the Trustee Board;

(d)   as part of the Trustee Board, the member representatives have been consulted on the Proposed Trust Deed Amendment, the Preferred Clause, and the Trustee’s application for judicial advice; and

(e)   providing notice to the large number of individual members, would incur significant costs and time.

10   Further, the Trustee has extensively consulted with, and served all relevant materials and information on its principal regulator, APRA.”

33. In addition, the Trustee has engaged with member representative organisations about the application through their appointed directors on the Board. (Senior counsel for the Trustee acknowledged however that “whilst the directors, including those directors who have been elected by the membership, have been consulted through this process … they are not disinterested in the application, and so they are in sense potentially conflicted”: Tcpt, 4 May 2022, 39(17-24).)

34. Taking into account all of these matters, the submissions made by counsel for the Plaintiff on this topic should be accepted. To those submissions could be added the impracticability of serving all of the large number of members of the Fund. As well, I shall refer to s 63(4) of the Act later in these reasons.

35. In all the circumstances, I am satisfied that it is appropriate for the application, as amended, to proceed without the joinder of any other party, or notification to any other person or entity. That approach is consistent with the approach adopted, recently, by Henry J, in United Super at [65]-[68] and the cases to which her Honour referred.

The nature of the Plaintiff’s application

36. On 25 August 2021, the Board of the Trustee resolved to authorise management to instruct its solicitors, MinterEllison, if so advised, to seek judicial advice in relation to a form of orders.

37. At its meeting on 28 April 2022, the Board, having considered APRA’s submissions, and having received further advice from its solicitors, instructed the solicitors to draft appropriate revisions to the proposed form of orders in the form of what was described as, a “Preferred Clause”.

38. As stated, the Trustee, pursuant to s 63 of the Act and the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 55.2, seeks the Court’s opinion, advice or direction that it would be justified in amending the Trust Deed of the Fund to insert a new trustee remuneration clause giving the Trustee a right to charge, and take from the Fund a fee for acting as trustee of the Fund (described as “the Proposed Amendment”).

39. The Trustee did not bring any alternative claim for relief under s 81 of the Act (the statutory expediency jurisdiction). It did seek relief, in the event that it was necessary, relying upon the inherent jurisdiction of the Court.

40. Following the receipt, and reading, of the written submissions, my Associate, at my request, on 28 April 2022, sent an email, relevantly, in the following terms to the legal representatives of the Plaintiff and of APRA:

“His Honour has now been through the Court file and has read the Submissions of the Plaintiff and those of APRA, both of which he has found to be extremely helpful.

His Honour notes that the Plaintiff’s submissions in reply are due on Monday next. Please ensure that these are provided in hard and soft copy.

In order to save time at the hearing, and without having predetermined any issue to be raised or submission to be ventilated, it appears that the Plaintiff seeks an order regarding amending the Trust Deed by inserting a Clause, identified in the Summons, as Clause 2.19, the precise form of which has been included in the Summons.

APRA appears to have some concerns about the form of the proposed Clause 2.19.

Would there be utility in the legal representatives meeting, prior to the hearing, to discuss a proposed form of Clause 2.19 that would satisfy the concerns raised?

If this is not appropriate, would it be possible for APRA to identify a form of Clause 2.19 that would avoid the concerns raised?

The other matter which might be considered is whether any notice should be given by the Plaintiff to its members before any advice is provided by the Court.

His Honour raises these matters for the consideration of the parties now, rather than at the hearing, in accordance with s 56 of the Civil Procedure Act 2005 (NSW).

His Honour would be grateful if a prompt joint response by the legal representatives could be provided.”

41. By email sent on 29 April 2022, the Plaintiff’s solicitor responded in the following terms:

“Thank you for conveying his Honour’s comments in relation to APRA’s submission and the concerns raised in relation to the proposed form of Clause 2.19.

We confirm we have been taking urgent instructions from our client and will confer with APRA as to whether the alternative form of Clause 2.19 addresses all of APRA’s concerns and the question of whether any notice should be given to the members of the Fund.

We will respond as soon as possible with a joint response.”

42. The legal representatives, then, provided a joint response in an email sent on 2 May 2022, which was in the following terms:

“The Plaintiff has conferred with APRA and has informed it of the Plaintiff’s proposed amendments to its judicial advice application. The Plaintiff has also provided APRA with unredacted versions of all the material on which the Plaintiff relies, with the exception of material relating to its insurance policies. APRA has by a letter sent to the Plaintiff’s solicitors earlier this afternoon indicated that on the basis of its understanding of the acknowledged position regarding Option 2, the concern it raised about Option 3 (in relation to possible exclusion of general law duties and obligations under the statutory covenants) has been satisfactorily addressed. In this regard, please find attached an amended summons; an amended statement of facts; and the Plaintiff’s supplementary submissions.

The Plaintiff has also conferred with APRA in relation to the provision of its evidence to the court. APRA has indicated it has no objection to the Trustee serving further materials on the Court and APRA, or to the participants referring to affidavits at the hearing rather than a separately paginated court book. Electronic copies of the material on which the Plaintiff seeks to rely, in addition to the material provided on 30 March 2022, has been added to a share file which can be accessed”

43. Shortly thereafter, the Plaintiff caused to be filed, without leave, an amended Summons late on 2 May 2022. The Court granted leave nunc pro tunc, at the commencement of the hearing to file the amended Summons and an amended Statement of Facts.

44. The amended Summons, relevantly, provided:

“1 Pursuant to section 63 of the Trustee Act 1925 (NSW) and rule 55.2 of the Uniform Civil Procedure Rules 2005 (NSW), an order giving the Court’s opinion, advice or direction that the Plaintiff would be justified in amending the trust deed of the fund of which the Plaintiff is trustee to insert a new clause 2.19:

2.19   Right to fees

(a)   The Trustee has a right to charge and take from the Fund for itself, without the need for consent or authorisation, a fee for acting as trustee of the Fund. The amount of that fee must be an amount which the Trustee determines is fair and reasonable.

(b)   The Trustee and directors may determine the amount of the fee that is charged under clause 2.19(a), despite having an interest in the result of that determination.

(c)   A fee that is charged under clause 2.19(a) may be deducted at the times and in the manner that the Trustee determines.

2 Pursuant to section 93 of the Trustee Act 1925 (NSW), an order that the costs of these proceedings be paid out of the assets of the fund of which the Plaintiff is trustee, on an indemnity basis.

5   Such further or other orders as the Court deems appropriate.”

45. (Hereafter, I shall refer to the Clause that is proposed to be added as stated in the amended Summons as the Proposed Amendment.)

The non-publication relief sought

46. Paragraphs 3 and 4 of the amended Summons sought, in relation to certain identified documents, an order pursuant to s 8(1) of the Court Suppression and Non-Publication Orders Act 2010 (NSW) or in the Court’s inherent jurisdiction, a suppression or non-publication order “on the ground that the order is necessary to prevent prejudice to the proper administration of justice, or it is otherwise necessary in the public interest for the order to be made and that the public interest significantly outweighs the public interest in open justice”.

47. I shall deal with this aspect in a summary way as, ultimately, there was no dispute between the Trustee and APRA as to the documents that should be the subject of such an order.

48. The Trustee submitted that the information over which confidentiality orders are sought falls into two categories. The first category consisted of information to which legal professional privilege applies and which privilege the Trustee does not waive. These documents include the opinions of counsel, and legal advices from KPMG and MinterEllison.

49. The first category of information is clearly privileged and confidential to the Trustee. As submitted by the Trustee, judicial advice applications are customarily supported by a confidential opinion of counsel and such opinions are ordinarily the subject of confidentiality orders: Re Application of NSW Trustee and Guardian [2014] NSWSC 423; Re Equititrust Ltd (In Liq) (Receiver Appointed) (Receivers & Managers Appointed) [2016] NSWSC 1936; NGS at [94].

50. The second category consists of confidential and commercially sensitive information which relates to correspondence between the Trustee and its regulators (ASIC and APRA), and the Trustee Board minutes and paper. The Trustee submitted that the contents disclose the workings and reasoning of the Trustee Board and advice received by it in addressing the issues posed by reason of the s 56 amendments, including consideration of matters from expert consultants and cost information. As the Trustee operates in a competitive market, it submitted that it would suffer commercial prejudice if such documents, including its internal risk modelling analysis, directly linked to the proposed new trustee fee, were to be disclosed to the market.

51. In deciding whether to make a suppression, or a non-publication order, in respect of the second category of information, the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: s 6 Court Suppression and Non-Publication Orders Act.

52. As APRA submitted, this ordinarily involves weighing the nature of the confidential factual material and the potential impact of its disclosure on the Trustee or the Fund against the normal requirement that evidence deployed in legal proceedings is deployed openly: Hogan v Hinch (2011) 243 CLR 506; [2011] HCA 4 at [21]; Tribal Health Pty Ltd v Flush Fitness Pty Ltd [2016] QSC 103 at [69] (Bond J).

53. Depending on the nature of the proceedings, the weight to be given to the public interest in open justice will vary. It may be necessary for the Court to consider whether the proceedings are criminal or civil in nature, whether they involve questions of public or private law, and whether they involve disputes that impact on the public or only the parties: Spirit Super at [104] (Henry J); NGS at [98] (Henry J).

54. Whilst the Court should be informed on relevant aspects of a party’s dealings, including its confidential information, to exercise the proper administration of justice, the confidential information, in this case, forms only a subset of the material relied upon, and the evidence over which no suppression order is sought. That evidence has been referred to in these reasons.

55. As identified by the Trustee, in the absence of a suppression order, the Trustee may be exposed to the risk that its confidential information will become public and could be exploited by competitors: Telstra Corporation Ltd v NBN Co Ltd [2014] NSWSC 940 at [91]-[93] (McDougall J); NGS at [100].

56. I accept the Trustee’s submissions that the confidentiality orders sought over the second category of information should be made. I am satisfied that this information is confidential to the Trustee and that the confidentiality order is necessary for the Trustee to gain some protection for that information to prevent prejudice to the proper administration of justice.

57. Sections 11 and 12 of the Court Suppression and Non-Publication Orders Act require that an order specify the place where it applies and the duration of that order. I accept the Trustee’s submission that, as the Fund operates throughout Australia and it has members in every State and Territory, the orders should apply throughout the Commonwealth of Australia: NGS at [106].

58. The Trustee’s submission that the Court should make suppression orders over the commercially sensitive, or commercial-in-confidence, material for a duration of 10 years also has merit. It based this submission on two grounds, the first being that, under ss 103 to 105 of the SIS Act, 10 years is the period of time for which superannuation trustees must keep minutes of meetings and certain other records relating to their governance and operations. The second ground is that the Trustee believes that 10 years is a period of time after which any competitive advantage associated with knowing this internal information is likely to be lost due to changes in the size, membership and funds of the Fund: NGS at [107].

59. With respect to the material that is subject to legal professional privilege, I accept the Trustee’s submission that it is not appropriate to impose time limitations on these orders as that would prejudice the protection afforded by the privilege itself.

60. During the hearing, there was discussion regarding the documents to be the subject of the order and, following the conclusion of the hearing, a form of order was provided to the Court in the following terms:

5 Pursuant to section 8(1) of the Court Suppression and Non-Publication Orders Act 2010 (NSW) or in the Court’s inherent jurisdiction, the disclosure of the following documents or any information contained in them (by publication or otherwise), by anyone other than the Plaintiff, be prohibited throughout the Commonwealth of Australia:

(a)   pages 6 to 148 of the exhibit titled “Confidential GO-2” referred to in the affidavit of Gokhan Oguzhan affirmed 8 March 2022;

(b)   the confidential affidavit of Gokhan Oguzhan affirmed 8 March 2022;

(c)   the exhibit titled “Confidential GO-3” referred to in the confidential affidavit of Gokhan Oguzhan affirmed 8 March 2022;

(d)   the exhibit titled “Confidential GO-5” referred to in the confidential affidavit of Gokhan Oguzhan affirmed 4 April 2022;

(e)   the confidential affidavit of Gokhan Oguzhan affirmed 4 April 2022;

(f)   the exhibit titled “Confidential GO-6” referred to in the affidavit of Gokhan Oguzhan affirmed 20 April 2022;

(g)   the exhibit titled “Confidential MG-1” referred to in the affidavit of Maged Girgis sworn 27 April 2022 now marked 'Exhibit 2';

(h)   from the words "MinterEllison" to the end of paragraph 7 of the affidavit of Gokhan Oguzhan affirmed 29 April 2022 as amended by a form of orders;

(i)   the exhibit titled “Confidential GO-8” referred to in the affidavit of Gokhan Oguzhan affirmed 29 April 2022;

(j)   the unredacted submissions of the Australian Prudential Regulation Authority dated 27 April 2022;

(k)   the exhibit titled "Confidential GO-9" referred to in the affidavit of Gokhan Oguzhan affirmed 2 May 2022; and

(l)   the confidential and legally privileged opinion of counsel dated 3 May 2022 now marked as 'Exhibit 2'

on the basis that the order is necessary to prevent prejudice to the proper administration of justice, or it is otherwise necessary in the public interest for the order to be made and that public interest significantly outweighs the public interest in open justice.

6   The documents referred to in order 5 be:

(a)   placed in a sealed folder marked ‘Confidential Exhibit 3';

(b)   not made available for inspection without an order of a judge of the Court; and

(c)   in respect of the items at 5(h) and (j), to the extent those items will otherwise be published, redacted.

7   With respect to only the items referred to in order 5 (a), (d), (e), (f), (i), (j) and (k), orders 5 and 6 will lapse after a period of 10 years from the date of these orders being entered.

61. On 9 May 2022, APRA sent an amended draft form of orders which it submitted might be more appropriate. APRA cited concerns that the effect of the previously proposed order would be that any factual matter referred to in any of the documents listed in paragraph 5 (such as APRA’s submissions or the various legal opinions) would be subject to the order, making the suppression order broader than necessary and preventing publication of the non-confidential parts of the court file. APRA’s revised draft order 5 is as follows:

“5 Pursuant to section 8(1) of the Court Suppression and Non-Publication Orders Act 2010 (NSW) or in the Court’s inherent jurisdiction, the disclosure (by publication or otherwise) of the following documents or any information contained in them (other than information to the extent it has already been disclosed in another document filed, to be filed in these proceedings or disclosed by the Plaintiff publicly) by anyone other than the Plaintiff, be prohibited throughout the Commonwealth of Australia:”

62. The Trustee did not oppose the suggested amendment, which in my view, is appropriate. The order referred to, in the above terms, should be substituted accordingly.

63. There was no dispute that APRA, in its role as regulator, has engaged in an extremely detailed way with the Trustee upon it being notified of the original application. As a consequence of its constructive involvement with the Trustee, by its legal representatives, the Plaintiff brought the amended application and proposed the amended orders.

The Evidence

64. In support of its application, as amended, the Trustee relied on an amended Statement of Facts dated 2 May 2022, and two affidavits of the Trustee’s Head of Risk & Compliance, Mr Gokhan Oguzhan, each affirmed on 8 March 2022. One affidavit, which comprises 37 paragraphs also contains an Exhibit of 109 pages (Ex. GO1). It sets out general background information which gives rise to the application (the general affidavit). The other affidavit is described as a “Confidential Affidavit” (I shall refer to it as such) and it contains material going to legal advice that has been provided to the Plaintiff. Mr Oguzhan did not give any oral evidence. The facts stated are supported by the evidence read in the proceedings.

65. I am satisfied that the Amended Statement of Facts and affidavits to which I have referred identify the relevant factual matters which are to be assumed to exist for the purpose of providing the necessary opinion advice or direction that has been sought. Naturally, it is impracticable to include all of the facts stated.

The Background

66. I have taken almost all of what appears hereunder from the amended Statement of Facts that was relied upon and also from the written submissions provided by counsel.

66. The Trustee is a not-for-profit company governed by a constitution amended from time to time, the last amendment taking effect from 7 March 2022 (SCS Constitution).

67. The Fund was originally established as an industry fund for the benefit of members from the Catholic education, healthcare, aged care and welfare sectors. Although the membership of the Fund is open to members of the public, the majority of the Fund’s members continue to be from the education, healthcare, aged care, and welfare sectors.

68. The Fund offers superannuation benefits through various products. As at 10 February 2022, the Fund had over 80,000 members and $10.5 billion in funds under administration. It offers superannuation benefits through various products (including a MySuper product).

69. The Trustee currently holds a Registrable Superannuation Entity licence (the RSE Licence) issued under s 29D of the SIS Act. The RSE licence permits it to be the trustee of public offer funds. (Public offer funds are “open to any member of the public, whether or not employed and whether or not associated with a corporate group, government sector or industry”: AustralianSuper at [7] (Blue J).)

70. It also holds an Australian Financial Services Licence (the AFS Licence), issued under Chapter 7 of the Corporations Act. The AFS Licence authorises it to provide financial product advice in relation to a superannuation product, to deal in superannuation products to wholesale and retail clients, as well as to provide superannuation trustee services.

71. The RSE licence and the AFS licence have the effect of making the Trustee’s activities subject to regulation by APRA and ASIC.

72. As a public offer superannuation fund, under s 93(3)(a) of the SIS Act, either:

1. The Trustee of the Fund must be an independent trustee; or

2. The Fund must comply with the basic equal representation rules.

74. Under s 89 of the SIS Act, the Fund complies with the basic equal representation rules if the Fund has a single corporate trustee and the board of that trustee consists of equal numbers of employer representatives and member representatives.

75. Clause 1.1 of the Trustee’s Constitution defines a "Member Representative" to have the same meaning as under the SIS Act. Section 10 of the SIS Act defines a "member representative" in the following terms:

"member representative", in relation to a group of trustees of a fund, a policy committee of a fund or the board of directors of a corporate trustee of a fund, means a member of the group, committee or board, as the case may be, nominated by:

(a)   the members of the fund; or

(b)   a trade union, or other organisation, representing the interests of those members.

76. The Trustee has all the powers of a natural person who is beneficially entitled to the assets of the Fund and may do anything it considers appropriate to administer the Fund and comply with Superannuation Law. It may appoint any person to perform any function of the Trustee and delegate any of its powers, duties and discretions.

77. The Trustee has never received any remuneration in relation to its services for the Fund.

78. SCS Super Holdings Limited (HoldCo) is the sole shareholder of the Trustee, and is governed by a Constitution dated 9 November 2016, as amended from time to time. Until 7 March 2022, the Trustee’s Constitution prevented the distribution of income to its sole shareholder.

79. HoldCo is a company limited by guarantee. Accordingly, it does not have the power to issue shares. The liability of the members of HoldCo is limited to an amount not exceeding $10. It is not able to pay any dividend to the members of HoldCo.

80. The Trustee’s only assets are represented by nominal capital. As at the end of the financial year ending 30 June 2021, the Trustee’s total equity was $6.

81. Under Clause 18.1(g) of the Trustee’s Constitution, the Board has the power to determine the proportional representation of Directors. However, this power is limited in that the Directors must be appointed in a manner that maintains the following proportions comprising employer representatives and member representatives. Seven Directors must be appointed from New South Wales and the Australian Capital Territory; three Directors must be appointed from Queensland; and two Directors must be appointed from Western Australia.

82. The Trustee facilitates (through external consulting firm Mercer) an election by members of the Fund every four years for the purposes of determining Directors who are to be appointed as Member Representatives on the Trustee’s Board.

83. The Trustee is required to undertake complex work carrying with it a high degree of responsibility. The Trustee’s Board has delegated some powers and authorities to committees, which are comprised of directors on the Board.

84. The Trustee has assessed the costs of an unplanned insolvency of the Trustee to the Fund and its Members and has concluded those costs would likely exceed the fees the Trustee would charge pursuant to the Proposed Amendment.

85. The Trustee maintains a policy for the amount, use, investment, monitoring and review of the Administration Reserve (Reserving Policy). The Trustee’s Reserving Policy currently states that reserves are held by the Fund for three broad purposes:

1. To hold a proportion of the Fund against possible contingent obligations;

2. To maintain adequate financial resources to ensure administrative and investment efficiencies are retained; and

3. To ensure compliance with any conditions of the RSE Licensee of the Trustee as issued by APRA.

86. The Trustee has established three reserves within the Fund.

87. First, the Trustee established the Operational Risk Reserve to meet the Operation Risk Financial Requirement. Section 52(8)(b) of the SIS Act imposes a covenant in the governing rules of a registrable superannuation entity requiring a trustee to maintain and manage (in accordance with the prudential standards set by APRA) financial resources (whether capital of the trustee, a reserve of the superannuation fund or both) to cover the operational risk that relates to the entity. The relevant standard is APRA Prudential Standard SPS 114.

88. As at 31 March 2022, the assets in the Operation Risk Reserve had a value of $25.9 million.

89. Second, it established the Administration Reserve. Currently, the administration fees and costs charged to members’ accounts are credited to the Administration Reserve. The Administration Reserve is governed by the “Reserving Policy”.

90. The Reserving Policy confirms that the reserves are held as an asset within the Fund and each is segregated, from an accounting perspective, from other reserves and assets of the Fund.

91. The Administration Reserve is used for the following purposes:

1. Ongoing management of the Fund’s operating expenditure, including circumstances where Fund income is insufficient to cover operating expenditure for a short or extended period;

2. Funding for large project expenditure which may be required on an irregular basis;

3. Provision for costs associated with making good operational risk incidents (that are not otherwise covered by the Operational Risk Reserve);

4. Wind up costs (that are not otherwise covered by the Operational Risk Reserve).

92. The target level for the Administration Reserve is up to 2% of the Fund’s total assets. As at 30 June 2021, the amount of the Administration Reserve was 0.6% of the Fund’s total assets.

93. Currently, administration fees and costs charged to members’ accounts are credited to the Administration Reserve.

94. After the costs of administering the Fund are met from the Administration Reserve, the remaining balance is used to meet liabilities or expenses for which the Trustee has a right to be indemnified. As at 31 March 2022, the total assets in the Administration Reserve had a value $81.6 million.

95. Third, the Trustee established a Queensland Part 1 Reserve. The funds in this Reserve are used to pay the insurance premiums formally of the Queensland Roman Catholic Retirement Plan, which employers paid 1.5% of their salary to the Reserve to cover the cost of the insurance premiums.

96. Unlike many other industry fund trustees, the Trustee does not outsource its administration functions to an external service provider, but rather self-administers the fund. However, it does outsource the coding function of the registry system, to facilitate the administration function of the Fund.

97. Therefore, the Trustee effectively bears all of the risks associated with the performance of its administration fund. Even to the extent that any risk is transferred, in part to the external provider, the Trustee would remain responsible under its general law and statutory obligations for the selection, monitoring and supervision of the external service providers and is responsible in its role of Trustee of the Fund as an RSE licensee under the SIS Act and an AFSL Holder under the Corporations Act.

The Trust Deed and payment of expenses

98. As stated, the Fund was established by the Trust Deed dated 30 June 1981, as amended from time to time, being amended most recently with effect from 19 February 2021. The governing law of the Trust Deed is the law of New South Wales: Clause 14.15.

99. Historically, the Trust Deed provided that “Fund Expenses” were to be paid by the Trustee invoicing the Fund during the financial year, including remuneration paid to the Trustee’s directors.

100. The Trustee’s practice is to on-charge to the Fund premiums for trustee indemnity insurance it holds.

101. Clause 2.11 of the Trust Deed currently provides for an indemnity out of the Fund to the Trustee to recover from the Fund any loss or expenditure incurred in relation to the Fund or the administration of the Trustee unless:

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

(2)   it is for a monetary penalty under a civil penalty order;

(3)   it is for any amount expended out of capital of the Trustee that is managed and maintained by the Trustee to cover the operational risk of the Fund;

(4)   it is to indemnify itself out of any assets of the Fund that do not form part of a reserve maintained for the purpose of covering the operational risk relating to the Fund, for any amount that relates to that risk, without first exhausting the reserve and any other financial resources managed and maintained by the Trustee to cover the risk; or

(5)    the law prevents it

102. Clause 14.1 of the Trust Deed provides:

14.1   the expenses (including tax incurred by the Trustee) in connection with the Fund or the administration of the Trustee or its holding company which are not paid by an Employee are payable from the Fund. The Trustee must reimburse an Employer for its reasonable expenses in connection with the Fund unless:

(1)   The Employer does not require reimbursement; or

(2)   Superannuation Law does not permit.

103. Currently, the remuneration clause in the Trust Deed provides:

2.18   The directors of the Trustee (and its holding company) may receive remuneration for their office from the Fund at a rate determined by the Trustee, based on the advice of an appropriately qualified independent consultant appointed by the Trustee. An Employer may remunerate the Trustee from its own resources.

104. Whilst the Trustee has never received any remuneration in relation to its services for the Fund, its directors do receive remuneration.

105. Regarding insurance, the Trustee’s practice is to hold liability insurance policies in relation to various insured events, including professional indemnity insurance, directors’ and officers’ liability insurance, investigation insurance and legal expense insurance. Relevantly, cl 2.10 of the Trust Deed provides:

2.10   The Trustee is only liable for its acts or omissions which are dishonest or constitute an intentional or reckless failure to exercise the degree of care and diligence required of it.

The power to amend the Trust Deed

106. Pursuant to r 16 of the Trust Deed, the Trustee has express power to amend the Trust Deed.

107. Rule 16.1 provides:

The Trustee may amend any of the provisions of the Deed including this Rule 16. The Trustee must obtain the consent of a Principal Employer to any amendment that increases, or introduces a power that can be exercised in a manner that increases, the Principal Employer’s liability to make contributions or any other payments to the Fund.

108. The amendment must be in writing (r 16.2) and may take effect from a date before or after the time it is made (r 16.3). The Trustee must notify the Beneficiaries of the nature, purpose and effect of any amendment if superannuation law requires, however, failure to notify does not invalidate the amendment (r 16.6).

109. The power to amend the Trust Deed is limited by rr 16.4 and 16.5, which states, respectively:

No amendment may reduce the amount of any benefit, calculated on the basis of contributions made by the Member and the Employer to the Fund and earnings on those contributions, that has accrued or become payable to a Member before the amendment unless the reduction is permitted under Superannuation Law.

No amendment may:

(1)   alter a benefit entitlement contrary to Superannuation Law; or

(2)   enable an individual to be appointed as Trustee unless Superannuation Law permits.

110. As stated, the Trust Deed has been amended several times since its original version dated 30 June 1981 with the current version dated 19 February 2021. A draft of the amending Deed Poll, which includes an earlier version, was prepared by the Trustee’s solicitors and forms part of the evidence.

Regulatory Framework

111. The Fund is a regulated superannuation fund and registerable superannuation entity for the purposes of the SIS Act.

112. As stated, the Fund holds an RSE licence and an AFS license.

113. The significant changes to the regulatory environment in which the Trustee and its directors have administered the Fund have expanded the regulatory obligations of superannuation trustees under the SIS Act and Chapter 7 of the Corporations Act; have increased penalties for non-compliance with those obligations; and have intensified regulatory scrutiny and enforcement of superannuation trustee’s conduct. The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (NSW) (FSR Act) has also resulted in amendments to ss 56(2) and 57(2) of the SIS Act.

114. In broad terms, the amendments effectively provide that from 1 January 2022, the Trustee and its directors cannot be indemnified for statutory liabilities from the Fund. Thus, the imposition of any statutory liabilities may affect not only the Trustee, but also expose its directors to personal liability for which indemnity may not be able to be claimed.

115. Although I have read APRA’s extremely detailed submissions (particularly at paragraphs 4-13), which deal extensively with the statutory amendments, all counsel agreed, at the hearing (Tcpt, 4 April 2022, p 32(22)-33(25)), that it would only be necessary to refer to what Henry J wrote in NGS at [36]-[39] concerning those amendments:

“Currently, ss 56(2) and 57(2) of the SIS Act render void provisions of a superannuation entity’s constituent documents that, amongst other things, would have the effect of exempting a trustee from, or indemnifying a trustee or director against, liability for breach of trust in failing to act honestly in a matter concerning the Fund or intentionally or recklessly failing to exercise the degree of care and diligence required to be exercised in relation to a matter affecting the Fund.

The amendments to ss 56(2) and 57(2) of the SIS Act which take effect on 1 January 2022 (SIS Act Amendments) will impose additional restrictions on indemnification that render the Trustee and its directors personally liable for a range of obligations imposed by Commonwealth law, including obligations of strict liability.

In summary, the SIS Act Amendments extend the existing prohibitions on indemnification and exemption to prevent trustees and their directors from using trust assets to pay any criminal, civil or administrative penalty incurred in relation to a contravention of any Commonwealth law, where that liability is imposed on or after 1 January 2022. This will extend to circumstances where the trustees or their directors have not engaged in criminal conduct, acted dishonestly or been guilty of gross negligence. The SIS Act Amendments and relevant parts of the Explanatory Memorandum to the Bill that introduced them are detailed in QSuper at [27] – [28] and in HESTA at [19]–[20].

The SIS Act Amendments will take effect in a regulatory environment that has heightened the exposure of trustees to penalties and seen an intensification of enforcement actions by ASIC and APRA concerning the conduct of superannuation trustees and officers.”

116. In addition, Kelly J has identified, most usefully, the more significant legislative changes that have been introduced, and has detailed the range of penalties to which superannuation trustees are now exposed in QSuper at [22]-[27].

117. (Also see the comprehensive history set out by Blue J in AustralianSuper at [10] – [25] and his reference to the authorities at [87] – [120].)

Rationale for the Proposed Amendment

118. Naturally, the Trustee has considered the impact of the SIS Act amendments. As a not-for-profit (or “profit-for-member”) company, the Trustee does not currently hold sufficient capital which could be used to indemnify it, or otherwise meet related liabilities. As a result of the SIS Act Amendments, the Trustee risks becoming insolvent if a fine or penalty was to be imposed (e.g., as a result of an inadvertent breach of Commonwealth legislation), and the Trustee does not have sufficient capital to pay the penalty.

119. It believes that now, as the Trustee of the Fund, it will be liable to the potential imposition of fines and penalties in relation to any contravention of Commonwealth laws in respect of which it will not be indemnified by the Fund. As it has no significant capital of its own out of which to pay any such fines or penalties it may become insolvent.

120. The Trustee is unaware of any allegation of a past breach of trust. It has not been, and is not, presently, the subject of any regulatory investigation, or threatened or actual enforcement proceedings by APRA, ASIC or any other Commonwealth regulator.

121. However, and naturally, it has also considered the chain of events which may occur if it did become insolvent. Those events would involve its removal as a trustee, the appointment of administrators, and, eventually, the appointment of a new trustee or successor fund: see s 120(2), ss 126K and 133 and s 134 of the SIS Act. Each of those events would be likely to result in significant transaction costs, which would be borne out of the Fund assets. Ultimately, these costs would fall on members.

122. To address the risks from the legal and regulatory changes, the Trustee explored various options for funding liabilities or expenses for which it will no longer be able to be indemnified out of the assets of the Fund (un-indemnifiable liabilities). The options which were explored included considering:

1. The availability of raising additional shareholder capital. However, HoldCo, as the sole shareholder, has confirmed that it is unable to raise any capital for the Trustee to meet any liabilities in respect of which it would not be indemnified.

2. Its current insurance arrangements and securing additional insurance cover. However, the insurance policies are subject to coverage limits, exclusions of cover, and a payment of a deductible for each and every claim.

3. Income derived from investment of personal assets. However, given that the Trustee has and will continue to hold nominal share capital, the Trustee has concluded they will have insufficient income to meet any liabilities.

4. Third party indemnities. However, since the Trustee does not outsource the majority of its administration functions to an external services provider, there are not any relevant indemnities to seek.

1. Using a special purpose services company to provide management and administration service to the Trustee for the benefit of the Fund. However, the Trustee does not consider this to be the best financial interests of members.

2. A bank guarantee. However, it was likely that the bank guarantee would itself be an un-indemnifiable liability that could not be met.

123. The Trustee has determined that the above options, either individually or together, would not be sufficient to meet the risk of liabilities in respect of which it would not be indemnified. It is concerned that this risk will give rise to a risk of its insolvency due to its lack of available capital.

124. The Trustee has assessed the potential costs and other consequences to it and the Fund in the event that the Trustee becomes insolvent, and is thereby disqualified from acting as trustee, on the assumption that the Fund would be a successor fund transferred to another existing superannuation fund. That analysis (which is subject to confidentiality claims) shows that the costs to the Fund (and thus to its members) would likely be substantial.

125. In this context, the Trustee identified the option of amending the remuneration clause in the Trust Deed and commence charging a fee for the provision of its services as Trustee, which it had previously provided gratuitously. It is of the view that “making the Proposed Trust Deed Amendment is a necessary course of action to pursue and in the best financial interests of members”: Affidavit of G Oguzhan, 8 March 2022 at par 12.

126. At its meeting of 17 February 2022, the Board considered the issues and material and resolved to make the application for judicial advice.

127. I have set out the Proposed Amendment earlier in these reasons.

128. The Trustee has taken advice from senior and junior Counsel and its solicitors, MinterEllison, on the proposal to amend the Trust Deed in the context of the concerns raised by the amendments to the SIS Act. It has also engaged with APRA regarding the nature of, and rationale for, the Proposed Amendment.

129. If the Proposed Amendment is made, the Trustee proposes to adopt a Trustee Capital Management Policy, to establish a Trustee Capital Reserve, and to build that reserve by charging a trustee fee in order to raise the Trustee Capital Target Amount of $6 million over a period of 2 years net of taxes (Proposed Fee). It would do so by taking remuneration for its services by charging, and taking it, from the Administration Reserve, which would not result in an increase in the fees charged against a member’s account. It would reserve, within its own balance sheet, amounts raised through the use of the power, the Trustee Capital Reserve, which would then be used for the purposes of an object of the Fund, as set out in the Constitution.

130. In summary, the circumstances relevant to the Proposed Amendment include:

1. There is a high degree of responsibility, range, volume, standard, and complexity of work required by the Trustee in circumstances where the Fund has more than $10.5 billion in funds under administration and over 80,000 members, belonging to a number of categories of members, including accumulation, defined benefit and retirement pension categories.

2. The broad range of highly complex work undertaken by the Trustee carries with it the risk of future liabilities being incurred as trustee holding AFSL and RSE licences.

3. The risk of future liabilities has expanded given that, from 1 January 2021, a broader range of the Trustee's activities are designated a ‘superannuation trustee service’ and will be subject to regulation under Chapter 7 of the Corporations Act.

4. The Trustee anticipates that there will be a wide range of potential trustee liabilities that will be unable to be indemnified from the Fund by reason of the legislative amendments to s 56(2) and s 57(2) of the SIS Act that commenced on 1 January 2022.

5. Where the Trustee is not able to be indemnified out of the assets of the Fund for a liability, it will need to attempt to meet that liability from its own available resources (including insurance and retained earnings).

6. Where a director of the Trustee is not able to be indemnified out of the assets of the Fund, for a liability, it anticipates that the director will need to meet that liability from the resources of the Trustee (including insurance and retained earnings).

7. The Trustee’s historical practice has been to accumulate reserves for liability risks within the Fund’s reserves.

8. The Trustee’s capacity to generate its own resources is restricted for the following reasons:

1. It does not have a renumeration power under the Trust Deed or under statute.

2. It does not have a right or power to call on a guarantee or indemnity from its shareholder.

3. Whilst the Trustee does have a power to issue shares under Clause 5.1 of the Constitution, a number of restrictions apply which make raising any amount other than nominal share capital difficult.

4. Its power to borrow is restricted by s 67 of the SIS Act which states that, subject to certain exceptions, “a trustee of a regulated superannuation fund must not … (a) borrow money; or (b) maintain an existing borrowing of money”, noting that it does not consider any of the exceptions apply or would be of assistance in the currently contemplated circumstances; and even if it was not prohibited from obtaining finance in its personal capacity pursuant to that provision, it presently has no means to secure or repay it.

9. The Trustee’s capacity to generate its own resources is limited because:

1. Its only function is to operate as the trustee of the Fund; and

2. Since 1 July 2021, it is required by law to not have a duty to act in the interests of another person other than a duty that arises in the course of performing its duties or exercising its powers as trustee of the Fund.

10. There has been a recent significant increase in the potential for, and quantum of, fines and civil penalties for contraventions of Chapter 7 of the Corporations Act, and the Trustee’s Board anticipates that those penalties will be unable to be indemnified out of the assets of the Fund.

11. Civil penalties for contravention of the trustee covenants set out in ss 52 and 52A of the SIS Act have been introduced for conduct occurring from 6 April 2019, and those penalties will be unable to be indemnified out of the assets of the Fund.

12. Further civil penalties may be forthcoming if the Federal Government introduces the Financial Accountability Regime Bill 2021 (Cth) and it is passed and those penalties will be unable to be indemnified out of the assets of the Fund.

13. Recent amendments to the duty to act in the best financial interests of beneficiaries in s 52(2)(c) and s 52A(2)(c) of the SIS Act may do more than simply ‘clarify’ existing law, and together with the reversal of the evidentiary burden of proof, may make it more difficult to defend claims for breach of that duty, with any civil penalties incurred being unable to be indemnified out of the assets of the Fund.

14. APRA and ASIC have indicated an active enforcement agenda with respect to regulated superannuation funds like the Fund post the Hayne Royal Commission.

15. With a view to mitigating its possible future liabilities for which it will not be able to be indemnified out of the assets of the Fund and to promote, facilitate and ensure trustee resilience, the Trustee will continue to make enhancements to the Trustee’s internal risk management systems and processes, but those enhancements cannot eliminate every penalty risk.

16. The Trustee anticipates that it could generate a capacity to manage the residual risk of these unfunded potential future liabilities by accumulating retained earnings from its activities.

17. If the Proposed Amendment is made, the Trustee will reserve amounts raised in a Trustee Capital Reserve.

18. The Trustee proposes to adopt a Trustee Capital Management Policy which will govern the raising, use and management of the Trustee Capital Reserve by it. The proposed Trustee Capital Management Policy provides for the following:

1. the target amount for the Trustee Capital Reserve to be raised (Trustee Capital Target Amount);

2. the initial funding required to meet the Trustee Capital Target Amount;

3. the manner in which the Trustee Capital Reserve is to be held and the permitted uses and restrictions on the use of the Trustee Capital Reserve;

4. the investment and management of the Trustee Capital Reserve;

5. factors the Trustee must take in account in considering any future Trustee Capital Target Amount for the Trustee Capital Reserve;

6. the tolerance limits at which the Trustee Capital Reserve would be rebalanced;

7. where the Trustee Capital Reserve falls below the specified tolerance limit and is required to be topped up, the requirement for a funding (replenishment) plan together with legal advice to be provided to the Board, for the plan to be approved by the Board;

8. the factors which must be taken into account in the preparation of the funding plan, including the manner in which the Trustee will determine any fees charged using the power that is the subject of the Proposed Amendment;

9. how the Trustee Capital Reserve will be distributed on the winding up of the Trustee or the Fund; and

10. the Trustee Capital Target Amount shall be reviewed on an annual basis, considering the risk-based capital needs of the Trustee and any prudential requirements or guidance at the time.

19. To prepare for, and fund the cost of, certain liabilities, the Trustee currently sets aside an amount in the Fund’s reserves. It will smooth the initial impact on current and future members by charging and taking the trustee fee from the Fund’s Administration Reserve, rather than increasing the administration fee charged to member accounts.

20. The trustees of the leading retail and industry superannuation funds in Australia are able to rely upon remuneration or fee-charging clauses.

21. The Trustee is not aware of any allegations of breach of trust.

22. The Trustee is not aware of any investigation or enforcement proceeding by ASIC or APRA or any other Commonwealth regulator with respect to it, or any of its directors or officers.

23. In all of the circumstances, payment of remuneration to a professional trustee with expertise appropriate to the nature of the demands of the trust is in the interests of, and benefits beneficiaries because it ensures, or is more likely to ensure, the due or proper administration of the trust.

24. The Trustee is unable to obtain a variation to the Trust Deed by other means.

131. The Trustee acknowledges that it will be subject to an objective standard of fairness and reasonableness, and its statutory covenants and general law duties, in exercising its powers under the Proposed Amendment.

Section 63 of the Trustee Act

132. The Act gives no power to the Court, on application by a trustee or by any person who has a vested, future or contingent interest in property held on trust to, amongst other things, enlarge or otherwise vary the powers of the trustee to manage or administer the trust property.

133. However, as is well known, s 63 of the Act enables a trustee to apply to the Court for an opinion, advice or direction on any question respecting the management, or administration, of the trust property, or respecting the interpretation of the trust instrument.

134. Relevantly, s 63 provides:

63 Advice

(1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.

(2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction.

…

(4) Unless the rules of court otherwise provide, or the Court otherwise directs, it shall not be necessary to serve notice of the application on any person, or to adduce evidence by affidavit or otherwise in support of the application.

135. The Court’s power to give judicial advice is a broad discretionary power with the only jurisdictional bar to relief being the existence of a question respecting the management or administration of the trust property or the interpretation of the trust instrument.

136. In this case, it can be seen from the relief sought, that the advice concerns the administration of the trust property and/or the interpretation of the trust instrument. “Management or administration of property” includes taking steps to preserve the property and taking steps to make the property financially productive: Stein v Sybmore Holdings [2006] NSWSC 1004 at [59] (Campbell J). The words refer to both the manner in which trust property is managed, administered, handled, directed or controlled, and the actual carrying out of those functions. In addition, the words include transferring part, or all, of it, as required, to those who have become entitled to it. The words are not confined to the continued holding of the property in question.

137. As Henry J wrote in NGS at [59]-[61]:

“In exercising the jurisdiction to give judicial advice, the Court should proceed on the basis that interests of the trust estate are paramount: Macedonian Church at [104] – [105], [107], [125] (Gummow ACJ, Kirby, Hayne and Heydon JJ), [196] – [197] (Kiefel J).

It is not the Court’s function to take over the exercise of the Trustee’s discretion, assess the commercial wisdom of the Trustee’s decision, or tell the Trustee what to do. An order giving judicial advice is permissive and usually in the form that the trustee “is justified’ in doing something on the basis of a specified state of affairs or assumption: Re Application of NSW Trustee & Guardian [2014] NSWSC 423 at [24] – [25], cited in Baymill Investments Pty Ltd v Drewlock Pty Ltd [2019] VSC 827 at [80].

The central question on this application is whether, on the material before it, the Court is satisfied that the Trustee’s proposed course of action or exercise of power to amend and make the Proposed Amendment is proper and lawful: Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Limited (2006) 15 VR 87; [2006] VSC 112 (Invensys) at [36]. The Court is concerned with whether the proposed course is within power and whether the exercise of power will not be improper in the sense that it is not exercised in good faith, with real and genuine consideration or in accordance with the purpose for which it was conferred, or it is exercised for an ulterior purpose: Care Super at [27], citing Longboat Holdings Groupno3 v Zacole Pty Ltd [2021] VSC 280 at [58]–[60].”

138. Essentially the Court’s sole purpose in giving judicial advice is to determine what ought to be done in the best interests of the trust estate. Even so, it “may provide judicial advice in cases of perceived or actual conflict between the trustee’s duty as trustee and its personal interest, including when exercising a power of amendment”: LGSS at [79] (Ward CJ in Eq).

139. An order under s 63 produces the statutory consequence stated in s 63(2), namely that if the trustee, having received judicial advice, acts in accordance with it, the trustee is “deemed to have discharged the trustee's duty as trustee in the subject matter of the application”.

140. UCPR r 55.1, provides:

(1) A statement under section 63 of the Trustee Act 1925:

(a) must be divided into consecutively numbered paragraphs, and

(b) must state the facts concisely, and

(c) must state the question for opinion, advice or direction.

(2) Despite rule 6.12 (2), the originating process in proceedings under section 63 of the Trustee Act 1925 need not state the question for opinion, advice or direction.

141. UCPR r 55.2 provides that an opinion, advice or direction given under s 63 “must be given by order”. However, such an order is permissive in nature, its usual form being that the trustee “would be justified” in taking certain action. As such, the order does not carry with it the usual consequences of an order made by the Court in adversarial proceedings, regardless of whether parties have been given notice of the application under s 63(4). Thus, it does not create a res judicata. It does not finally determine the rights of parties. Indeed, it does not, of itself, determine any rights, although, it has the potential to affect the rights of the parties given notice under s 63(4). It does not carry with it the consequences of breach, including, e.g. the exposure to contempt proceedings should an order be disobeyed: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2006) 66 NSWLR 112; [2006] NSWCA 160.

142. Furthermore, this sort of application provides a summary procedure, intended to enable questions arising in the administration of an estate, or a trust, to be resolved cheaply and simply: Macedonian Orthodox Community Church St Petka Incorporated v His Eminence PetarThe Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 at [61].

143. The Trustee is resident and administered in New South Wales; and is a company registered in New South Wales with its registered office and principal place of business in New South Wales. The original Trust Deed provided in cl 14.15 that the Trust Deed is governed by the laws of New South Wales.

Determination

144. There are no discretionary reasons to not entertain the Trustee’s application.

145. On the material before the Court, I am satisfied that the Trustee’s proposed course of action seeking to amend and make the Proposed Amendment is proper and lawful.

146. I am also satisfied that the exercise of power will not be improper in the sense that it is not exercised in good faith, with real and genuine consideration or in accordance with the purpose for which it was conferred, or it is exercised for an ulterior purpose: Re Care Super Pty Ltd [2021] VSC 805 at [27], citing Longboat Holdings Groupno3 v Zacole Pty Ltd [2021] VSC 280 at [58]–[60].

147. It was not submitted, in my view, correctly, that the proposed Amendment contravened the amendments to sections 56(2) and 57(2) of the SIS Act. As was written in Re QSuper Board, by Kelly J, at [32]:

“In my consideration, the Proposed Amendment is not precluded by the amendments to ss 56(2) and 57(2) of the SIS Act. The provisions appear in a statute which has, as one of its main objects, the prudent management of superannuation funds. The Proposed Amendment is directed towards conferring upon the QSuper Board a power to charge remuneration which is sought in aid of its obligations to keep itself in a sound financial position. This is fundamentally a prudential matter. I accept that a trustee with insufficient personal assets to meet a potential liability which might previously have been the subject of an indemnity now precluded by the amendments to ss 56(2) and 57(2) of the SIS Act must be able to arrange access to funds by some different means or face the unacceptable risk of insolvency. Section 56(2) is directed to provisions in the governing rules of a superannuation entity which would have the effect of “exempting a trustee … from” or “indemnifying a trustee … against” certain liabilities. Section 199A of the Corporations Act contains similar language. The concern of this type of provision is what might be described as “blank cheque indemnification and exemption”. These features are not apparent in the Proposed Amendment. The statutory provision also uses technical language, namely “exempting” and “indemnifying”, which is apt to apply to liabilities which have arisen, as distinct from possible, prospective liabilities. In my consideration, the levying of a fee, which is meant to build up over time into an asset that may be deployed by the trustee in the event that it becomes subject to a liability against which it cannot be indemnified, does not have the substantive effect of conferring an exemption from or indemnifying against that liability. Notably, the fee charged may prove to be insufficient, or excessive, to cover the extent of the liability and does not have the effect of excusing or extinguishing the liability of the trustee.” (citations omitted)

148. Furthermore, the Trustee has a duty to act in the best financial interests of the members of the Fund. In adopting a broad and practical approach when assessing whether the Proposed Amendment is in the best financial interests of the members, the court should consider the interests of present and future members and have regard to the commercial and practical realities of the superannuation industry generally. There does not appear to be any suggestion that one class of members would be unfairly advantaged to the prejudice of another class.

149. I am satisfied that the Trustee would be reasonably justified in exercising the power of amendment to make the Proposed Amendment. The evidence satisfies me that the Trustee’s proposal to exercise its power to amend is made in good faith and for a proper purpose upon a real and actual consideration of its position. It has identified a list of relevant circumstances that demonstrates that it has good reasons for the Proposed Amendment and justifies the view that it would be in the best interests and to the benefit of the Fund’s members to make it. Clearly, it is in the best financial interests of the members of the Fund that the Trustee take steps to ensure the due and proper administration of the Fund. That includes protecting against any risk of it becoming insolvent. There is, therefore, good reason to make the Proposed Amendment.

150. Again, quoting Kelly J in Re QSuper at [38]:

“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 [14]; Re Retail Employees Superannuation Pty Ltd [2013] NSWSC 1681 [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.”

151. The Trustee acknowledges that it will be subject to an objective standard of fairness and reasonableness, and its statutory covenants and general law duties, in exercising its powers under the Proposed Amendment.

152. The evidence also indicates that the Trustee has given due and proper consideration to the impact of charging a fee on members of the Fund. It appears to understand that in the future, in deciding to exercise its power to charge remuneration, its power will not be unconstrained and it will remain burdened by the obligations and duties it has as a trustee, including the requirement that the power be exercised for a proper purpose having regard to the best financial interests of members and would only do so having regard to legal advice, and the Board’s own satisfaction of its compliance with, duties under trust law, the SIS Act and the Corporations Act.

153. As was pointed out by senior counsel for APRA at Tcpt, 4 May 2022, p 50(19-29):

“… there’s a distinction to be drawn between your Honour’s task which is to consider whether the amendment power is properly exercised to introduce the fee charging power. That is the matter of which your Honour is seized. And then what will be a logically secondary and future question, of whether the exercise of that fee charging power in due course would be justified. That is not a matter which your Honour needs to decide, because your Honour is not seized of that, but the trustee, having acknowledged that when it comes to exercise that power it will be bound by the statutory covenants is an important matter that your Honour can and should have regard to, respectfully, in giving you comfort.”

154. Finally, the confidential opinion from Counsel and the approach adopted by APRA in raising its concerns which have subsequently been dealt with convinces me that it is appropriate to make the orders sought by the Trustee.

155. In these types of applications, and consistent with ss 59(4) and 93 of the Act and UCPR r 42.25, the Trustee’s costs, calculated on the indemnity basis, should be paid out of the assets of the Fund.

156. The Trustee has proposed orders which have been considered by APRA.

157. The orders of the Court are:

1. Orders pursuant to section 63 of the Trustee Act 1925 (NSW) and rule 55.2 of the Uniform Civil Procedure Rules 2005 (NSW), that the Plaintiff would be justified in amending the Trust Deed of the Fund of which the Plaintiff is trustee to insert a new clause 2.19:

2.19   Right to fees

(a)   The Trustee has a right to charge and take from the Fund for itself, without the need for consent or authorisation, a fee for acting as trustee of the Fund. The amount of that fee must be an amount which the Trustee determines is fair and reasonable.

(b)   The Trustee and directors may determine the amount of the fee that is charged under clause 2.19(a), despite having an interest in the result of that determination.

(c)   A fee that is charged under clause 2.19(a) may be deducted at the times and in the manner that the Trustee determines.

2. Orders pursuant to section 93 of the Trustee Act 1925 (NSW), that the costs of these proceedings, calculated on the indemnity basis, be paid out of the assets of the Fund of which the Plaintiff is trustee.

3. Notes the acknowledgement made by the Plaintiff in paragraph 94A of the Amended Statement of Facts.

4. Orders pursuant to section 8(1) of the Court Suppression and Non-Publication Orders Act 2010 (NSW), the disclosure (by publication or otherwise) of the following documents or any information contained in them (other than information, to the extent it has already been disclosed in another document filed, or to be filed in these proceedings that is not subject to this confidentiality order; or has been disclosed by the Plaintiff publicly), by anyone other than the Plaintiff, be prohibited throughout the Commonwealth of Australia:

1. pages 6 to 148 of the exhibit titled “Confidential GO-2” referred to in the affidavit of Gokhan Oguzhan affirmed 8 March 2022;

2. the confidential affidavit of Gokhan Oguzhan affirmed 8 March 2022;

3. the exhibit titled “Confidential GO-3” referred to in the confidential affidavit of Gokhan Oguzhan affirmed 8 March 2022;

4. the exhibit titled “Confidential GO-5” referred to in the confidential affidavit of Gokhan Oguzhan affirmed 4 April 2022;

5. the confidential affidavit of Gokhan Oguzhan affirmed 4 April 2022;

6. the exhibit titled “Confidential GO-6” referred to in the affidavit of Gokhan Oguzhan affirmed 20 April 2022;

7. the exhibit titled “Confidential MG-1” referred to in the affidavit of Maged Girgis sworn 27 April 2022 now marked 'Exhibit 2';

8. from the words "MinterEllison" to the end of paragraph 7 of the affidavit of Gokhan Oguzhan affirmed 29 April 2022;

9. the exhibit titled “Confidential GO-8” referred to in the affidavit of Gokhan Oguzhan affirmed 29 April 2022;

10. the unredacted submissions of the Australian Prudential Regulation Authority dated 27 April 2022;

11. the exhibit titled "Confidential GO-9" referred to in the affidavit of Gokhan Oguzhan affirmed 2 May 2022; and

12. the confidential and legally privileged opinion of counsel dated 3 May 2022 now marked as 'Exhibit 2',

on the basis that the order is necessary to prevent prejudice to the proper administration of justice, or it is otherwise necessary in the public interest for the order to be made and that public interest significantly outweighs the public interest in open justice.

5. Orders that the documents referred to in Paragraph 4 be:

1. placed in a sealed folder marked ‘Confidential Exhibit 3';

2. not made available for inspection without an order of a judge of the Court; and

3. in respect of the items at 4 (h) and (j), to the extent those items will otherwise be published, redacted.

4. With respect to only the items referred to in order 4 (a), (d), (e), (f), (i), (j) and (k), orders 4 and 5 will lapse after a period of 10 years from the date of these orders being entered.

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Decision last updated: 01 June 2022