Application by United Super Pty Ltd atf Construction and Building Unions Superannuation Fund

[2021] NSWSC 1679

Supreme Court

New South Wales

Medium Neutral Citation:

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

Hearing dates:

10 November 2021. Last submissions received on 16 December 2021.

Date of orders:

20 December 2021

Decision date:

20 December 2021

Jurisdiction:

Equity

Before:

Henry J

Decision:

The Plaintiff is justified in amending the Trust Deed in the manner set out in the Draft Deed of Amendment.

Catchwords:

EQUITY – Trusts and trustees – judicial advice under r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) and cross-vesting legislation – where proposed amendments to trust deed of superannuation fund give trustee power to levy fee on members and accumulate trustee capital – where amendments sought to enable trustee to meet potential liabilities against it and its directors – where superannuation fund operates under profit-to-member structure with nominal capital – where trust deed contains existing remuneration power – 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

Legislation Cited:

Court Suppression and Non-Publication Orders Act 2010 (NSW), ss 6, 7, 8, 11, 12

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

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

Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic), ss 3(1), 4(3)

SuperannuationIndustry(Supervision)Act1993 (Cth), ss 52(2), 56(2), 57(2)

Supreme Court (General Civil Procedure) Rules 2015 (Vic), rr 54.02, 54.03(c)

Trustee Act 1925 (NSW), s 63

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

Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521; 138 ACSR 459

Ballard v Attorney-General (Vic) (2010) 30 VR 413; [2010] VSC 525

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

BTA Institutional Services Australia Ltd v BNY Trust (Australia) Registry Ltd [2009] NSWSC 1294

Chamberlin v Spry [2008] VSC 562

D1 v P1 [2012] NSWCA 314

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

Hancock v Rinehart (2015) 106 ACSR 207; [2010] NSWSC 646

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

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

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

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

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

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

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

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

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

Re Atkinson (deceased) [1971] VR 612

Re Care Super Pty Ltd [2021] VSC 805

Re Cuesuper Pty Ltd [2009] NSWSC 981

Re Dion Investments Pty Ltd [2013] NSWSC 1941

Re HEST Australia Ltd [2021] VSC 809

Re Perpetual Investment Management Ltd [2014] NSWSC 784

Re QSuper Board [2021] QSC 276

Re Retail Employees Superannuation Pty Ltd [2013] NSWSC 1681

Rinehart v Welker (2011) 93 NSWLR 311; [2011] NSWCA 403

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

Welker v Rinehart [2011] NSWSC 1094

Texts Cited:

Nil

Category:

Principal judgment

Parties:

United Super Pty Ltd (ABN 46 006 261 623) as trustee for Construction and Building Unions Superannuation Fund (ABN 75 493 363 262) (Plaintiff)
Australian Prudential Regulation Authority (amicus curiae)

Representation:

Counsel:
H Insall SC with T Rogan (Plaintiff)
S Cooper QC with D Allen (APRA as amicus curiae)

Solicitors:
Allens (Plaintiff)

File Number(s):

2021/301971

Publication restriction:

Nil

Judgment

1. The plaintiff, United Super Pty Ltd (Trustee), is the trustee of the Construction and Building Unions Superannuation Fund (Cbus) which was constituted by a trust deed dated 29 May 1984 as amended from time to time (Trust Deed).

2. By summons filed on 22 October 2021, the Trustee seeks judicial advice that it would be justified in amending the Trust Deed to charge a fee for acting as trustee that, amongst other things, is calculated as a percentage of the net assets of the Fund.

3. Although the Trust Deed contains an express power for the Trustee to receive remuneration, the Trustee is concerned about the generality of the provision and considers that it is in the best financial interest of members to provide greater clarity as to the fee which may be charged. This is in the context where changes in the regulatory and operating environment in which the Trustee, its directors and Cbus operate have increased the financial risks to the Trustee and its directors, particularly the changes to the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) relating to the indemnification of trustees and directors of trustees for liabilities and penalties incurred that take effect from 1 January 2022.

4. The Trustee brings this application as it recognises 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 their duty to members of Cbus.

5. The Trustee’s application is similar to other applications that have recently been brought in this and other courts in Australia: see Application by Motor Trades Association of Australia Superannuation Fund Pty Ltd atf Spirit Super [2021] NSWSC 1672 (Motor Trades); Re QSuper Board [2021] QSC 276 (QSuper); Re HEST Australia Ltd [2021] VSC 809 (HESTA); Re Care Super Pty Ltd [2021] VSC 805 (Care Super); Application by LGSS Pty Ltd atf Local Government Super [2021] NSWSC 1613 (LGSS); Application by Maritime Super Pty Ltd atf Maritime Super [2021] NSWSC 1614 (Maritime Super).

6. The Trustee relies on a statement of facts filed on 22 October 2021 which is supported by the following: an affidavit from the Trustee’s Chief Executive Officer, Mr Justin Arter affirmed on 20 October 2021; an affidavit from the Chair of the Board of the Trustee, The Hon Stephen Bracks AC, sworn on 20 October 2021; and an affidavit from Ms Geraldine Joyce, a Client Manager in the Financial Institutions and Professions team at Aon Australia, affirmed on 15 October 2021. It also relies on a confidential opinion of Senior and Junior Counsel and written submissions, including supplementary submissions that address some of the decisions referred to at [5] and the Trustee’s claims of confidentiality over parts of the material relied on.

7. The Australian Prudential Regulation Authority (APRA) was granted leave to appear at the hearing as amicus curiae and provided written submissions to the Court which were supplemented by oral submissions at the hearing.

8. I have been greatly assisted by the submissions of the Trustee and APRA and the timely manner in which the supplementary submissions were provided.

9. For the reasons that follow, I have determined that the Court should provide judicial advice to the Trustee that it would be justified in amending the Trust Deed as proposed. I have also decided that parts of the materials relied on by the Trustee in support of this application should be subject to orders made under the Court Suppression and Non-Publication Orders Act 2010 (NSW) and the Court’s inherent jurisdiction.

Background

10. Cbus is one of Australia’s largest industry superannuation funds and is based on a model developed between trade unions and employer associations to maximise returns to members. It was originally constituted in 1984 as the Building Unions Superannuation Scheme and renamed Cbus in 1993 after mergers with the Allied Unions Superannuation Trust, the Combined Trade Unions Retirement Fund, and CONNECT (a superannuation fund established for electrical and communications industry contractors).

11. Cbus is a public offer fund that offers accumulation and pension products.

12. As at 22 August 2021, Cbus had over 780,000 members, with members in each State and Territory of Australia. As at 30 June 2021, Cbus had net assets valued at approximately $63.5 billion and maintained a net asset surplus of around $350 million.

13. The Trustee is currently progressing a merger of Cbus with Media Super Ltd under which the members and assets of Media Super will be transferred to Cbus. This is expected to complete in or around April 2022. Following the merger, Cbus is expected to have around 833,000 members and assets valued at approximately $70 billion in funds under management.

The Trustee

14. The Trustee is a proprietary company limited by shares. Its issued capital is divided into A and B class shares, with the A class shares only to be held by trade unions or nominees of the Australian Council of Trade Unions (ACTU) (Member Bodies) representing the interests of Cbus’ members, and B class shares only to be held by an organisation representing the interests of an employer. The Trustee has issued 15 shares at $1.00 each, with a total contributed capital of $15.

15. Five Member Bodies hold the seven issued A class shares, with the Construction, Forestry, Mining and Energy Union holding three of them. The Master Builders Australia Ltd holds all seven issued B class shares and the ACTU holds the single issued non-voting share.

16. The board of the Trustee is made up of 14 directors. Consistent with the equal representation rules under Part 9 of the SIS Act, there are six member-representative directors, six employer-representative directors, and two independent directors on the Trustee’s board.

17. The Trustee’s Articles of Association (as adopted on 8 October 2021) provide that it is to act as trustee of Cbus. The Trustee does not carry out any other business.

18. According to the profit-to-member model of Cbus, the Trustee does not aim to profit personally from its position as trustee or generate any profit for its shareholders. This is reflected in its Articles of Association (which were amended on 8 October 2021) which provide that shares in the Trustee carry no right to a dividend and the Trustee’s board must not declare or determine a dividend or apply any portion of the income or capital of the Trustee to shareholders. The Articles also preclude distribution of any surplus capital to shareholders in a winding up: Articles of Association, cll 6.4, 6.4A and 55.1–55.2.

19. In the financial year ending 30 June 2021 (FY21) the Trustee recorded a loss of $281. Since inception in 1984, it has accumulated retained earnings of only $33,695, which is due to differences between expenses and amounts from the Fund used to fund those expenses and bank interest received on the Trustee’s cash assets.

20. Fees and charges are levied on members of Cbus with the aim of ensuring cost recovery and the maintenance of a reserve level for reinvestment of products and services that are appropriate to deliver the best outcomes to members. The fees levied include administration and investment fees.

21. The Trustee has established four reserve accounts: a General Reserve which holds Cbus’ investment earnings, from which investment expenses are paid out investment earnings are allocated to members; an Administration Reserve which receives administration fees and pays Cbus’ administration and operating expenses and other unexpected Cbus expenses; an Insurance Reserve which accounts for insurance-related income and expenditure; and an Operational Risk Reserve to protect CBUs from losses incurred from an operational risk event, as required by APRA Prudential Standard SPS 114 Operational Risk Financial Requirement.

Expenses and Trustee remuneration

22. Clause 1.1(g) of the Trust Deed provides that the Trustee is entitled to remuneration in the following terms:

1. TRUSTEE

1.1 Trustee

…

(g)   Subject to the Relevant Law, the Trustee shall be entitled to receive remuneration and to recover costs and disbursements incurred in respect of the provision of its services as Trustee of the Fund as the Trustee determines.

23. Relevant Law is defined to include the SIS Act: Trust Deed, cl 7.2.

24. The Trust Deed also provides that:

1.2 Trustee’s powers

…

(c)   The Trustee and a delegate of the Trustee has, in the exercise or non-exercise or partial exercise of each Power exercisable by that Trustee, or that delegate, as the case may be, an absolute and uncontrolled discretion and is only bound to give to any person any reason for or explanation of its exercise, non-exercise or partial exercise of any such Power if required to do so under the Relevant Law.

…

1.4 Indemnity

(a)   Subject to the Relevant Law and sub-clause 1.4(b), the Trustee, and each Director of the Trustee, will be indemnified out of the assets of the Fund and kept indemnified against any action, claim, counter-claim, set-off, demand, liability, cost or expense whatsoever arising in the capacity of Trustee or of a Director of the Trustee.

(b)   Sub-clause 1.4(a) does not apply to the Trustee or any Director where the Trustee or Director:

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

(ii)   intentionally or recklessly fails to exercise, in relation to a matter affecting the Fund, the degree of care and diligence that the Trustee, Director, officer or delegate is required to exercise under the Relevant Law; or

(iii)   incurs a monetary penalty in respect of a civil penalty order under the Relevant Law.

(c)   Where sub-clause 1.4(b) applies, the Trustee or Director will indemnify the Fund and keep it indemnified against any action, claim, counter-claim, set-off, demand, liability, cost or expense whatsoever arising from any act or omission involving fraud or wilful misconduct, wilful neglect or wilful default.

25. Clause 4.7, which concerns the General Reserve account, provides that the Trustee may apply that account for the payment of administration, insurance and other expenses of Cbus: cl 4.7(b)(i).

26. To date, the Trustee has not charged or collected any fee from Cbus under cl 1.1(g) by way of remuneration for the services it provides as trustee, except to recover the costs of remunerating its directors. In FY21, Cbus’ operating expenses included an amount for “Trustee fees and reimbursements” which was only used to remunerate directors. The other expenses incurred by the Trustee, such as administration costs, professional services fees, the remuneration of the Trustee’s Chief Executive Officer and certain staff, and other sundry expenses (such as director travel expenses), are paid directly out of the assets of Cbus pursuant to the Trustee’s expense recovery right.

27. Any personal liabilities of the Trustee which are not satisfied out of the assets of Cbus or via the current trustee fee are met by liability and indemnity insurance cover to the extent that the cover responds to a claim.

Regulatory framework

28. Cbus is a regulated superannuation fund and registerable superannuation entity within the meaning of the SIS Act.

29. As required, the Trustee holds an Australian Financial Services Licence (AFSL) under the Corporations Act 2001 (Cth), a Registrable Superannuation Entity Licence under the SIS Act, and a MySuper authorisation issued by APRA. The Trustee and its directors are subject to a regulatory environment overseen in particular by APRA and the Australian Securities & Investments Commission.

30. In recent years, there have been significant changes to the regulatory environment in which the Trustee and its directors has administered the Fund, which has made the discharge of their regulatory obligations and duties more onerous. The changes are detailed in an expert report annexed to Mr Arter’s affidavit prepared by Associate Professor Vivienne Brand at Flinders University dated 7 October 2021 and a report prepared by Professor Pamela Hanrahan of the UNSW Business School dated 6 October 2021. The reports highlight the complexity of the financial and superannuation laws that apply to the Trustee and its directors, the expansion of the regulatory obligations of superannuation trustees, the increasing risks for trustees and directors incurring penalties for non-compliance with their obligations, and the intensified regulatory enforcement activity concerning conduct of superannuation trustees and directors. The expansion of the range of penalties to which superannuation trustees are exposed and some of the more significant legislative changes that have been introduced over the years is also summarised by Kelly J in QSuper at [22]–[27].

31. Most recently, the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (NSW) (FSR Act) has effected amendments to ss 56(2) and 57(2) of the SIS Act which are to take effect from 1 January 2022 and have prompted the Trustee’s application in these proceedings.

32. 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.

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

34. 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]. In summary, the SIS Act Amendments extend the existing prohibitions on indemnification and exemption to prevent trustees and 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 Trustee or its directors have not engaged in criminal conduct, acted dishonestly or been guilty of gross negligence. These amendments will take effect in a regulatory environment that has heightened the exposure of trustees to penalties, as described by Associate Professor Brand and Professor Hanrahan.

Rationale for and overview of proposed amendments

35. The material in evidence identifies that the Trustee has robust and prudent risk management and compliance processes in place that inform and guide the Trustee’s operations. In the last five years, the Trustee has only received three fines or penalties relating to late lodgement. It is not aware of any current or threatened enforcement activity.

36. Mr Arter deposes that, to date, the Trustee has considered that cl 1.1(g) of the Trust Deed is sufficiently certain to allow it to charge a trustee fee to recover the cost of remunerating directors. However, the Trustee is concerned that the power under cl 1.1(g) may be construed narrowly to only allow payment of remuneration for costs and disbursements properly incurred on a cost recovery basis.

37. Mr Arter deposes that continuing to operate under the current remuneration arrangements (without modification) would put the Trustee at risk of insolvency. This is in circumstances where:

1. the changes to the legal and enforcement environment described above, together with an increase in the size of Cbus and commensurate increases in the scope and complexity of the Trustee’s operations, increase the exposure of the Trustee and its directors to financial risk, particularly as the SIS Act Amendments will mean that they will no longer be able to be indemnified out of Cbus for any amount of any penalty or infringement notice received under Commonwealth law;

1. the Trustee has limited access to capital, with $15 in share capital and retained earnings of $33,695;

2. the Trustee’s shareholders have each confirmed they are not in a position to commit to providing further shareholder capital to build financial resilience;

3. due to certain types of claims not being covered, applicable sub-limits and deductibles and possible delays in payment of claims, the Trustee has formed the view that its existing insurance arrangements will not adequately address the financial risks faced by the Trustee and its directors (particularly in light of the SIS Act Amendments). Further, the Trustee considers that there is a real prospect that a further tightening of the insurance market will make obtaining cover for superannuation funds even more difficult; and

4. the complexity of the regulatory environment is such that the robust compliance and risk management controls are unlikely to adequately mitigate the risk of a penalty being imposed.

38. According to Mr Arter’s evidence, insolvency of the Trustee would have significant adverse financial consequences for members of Cbus as insolvency would require the directors to appoint liquidators or administrators to the Trustee and likely result in one of three scenarios. The Trustee estimates that each of the three scenarios (namely a replacement trustee being appointed, the merger of Cbus with another fund by was of a successor fund transfer, or a replacement trustee appointed for an interim period before a merger and successor fund transfer) would result in substantial direct and indirect costs being incurred by Cbus and, thus, adversely impact members.

39. In addition, Mr Arter and Mr Bracks depose that, even if the risk of insolvency does not materialise, the increased financial risks to the Trustee and its directors and risk of insolvency would likely cause a loss of confidence in the financial resilience of Cbus, create risks of unduly conservative decision making, and result in difficulty in the Trustee attracting and retaining appropriately skilled directors.

40. It is in that context that the Trustee and the directors of the board considered that the most transparent and appropriate solution is to amend the Trust Deed to clearly define the scope of the remuneration power and provide for a constrained power of compensation which would enable the Trustee to properly manage the insolvency risk and allow for expenses that may be properly borne by way of fee rather than direct expense recovery (such as director remuneration and insurance).

41. The amendments that the Trustee proposes to make to the Trust Deed are set out in a schedule to a draft Deed of Amendment and are detailed at the end of these reasons at Annexure A (Proposed Amendments).

42. In summary, the Proposed Amendments empower the Trustee to impose a trustee fee in an amount equivalent to up to 0.10% of net assets of Cbus (as at the end of the previous biennial period) across successive periods of two financial years (Biennial Limit). The power to levy the trustee fee would be suspended for as long as and to the extent that the amount of capital held by the Trustee exceeds an amount equal to 0.14% of the net assets of Cbus or such other maximum amount of Trustee capital as the applicable law requires or a regulator permits, recommends, requests or directs the Trustee to hold (Aggregate Cap).

43. The Biennial Limit and Aggregate Cap have been set by reference to what the Trustee considers would ensure that any fee taken is appropriately limited to an amount which is prudent to cover the relevant risks and costs of the personal liability it assumes in performing its role as trustee, as well as the costs of remunerating directors and obtaining insurance coverage against liabilities incurred by it and its directors in discharging their roles. It has also been set with a view to preserving the profit-to-member ethos of Cbus.

44. The Trustee estimates that the maximum amount of the trustee fee that could be levied over two financial years (under the initial Biennial Limit) and the maximum amount that could be held as trustee capital (under the Aggregate Cap) would be less than the estimated direct transition costs in the event of Trustee insolvency.

45. The methodology which the Trustee adopted in calculating what amount of the trustee fee is fair and reasonable is set out in a Risk and Finance Methodology Report prepared by members of the Trustee’s risk and finance departments. In calculating a reasonable rate of remuneration representing the Trustee’s exposure to financial risk, the methodology had regard to the risk controls that the Trustee has in place and the likelihood that it would incur penalties.

46. The Trustee’s Risk and Finance Methodology Report has been independently reviewed by PricewaterhouseCoopers, who has confirmed that the methodology adopted for calculating the Biennial Limit and Aggregate Cap is fair and reasonable and consistent with its industry experience.

47. In addition, the Trustee has taken advice from Senior and Junior Counsel and its solicitors, Allens, on the proposal to amend the Trust Deed in the context of the concerns raised by the SIS Act Amendments. The Trustee has also engaged with APRA regarding the nature of and rationale for the Proposed Amendments.

48. The Biennial Limit and Aggregate Cap will be reviewed by the Trustee every four years to ensure they remain fair and reasonable and, if they are not, the Trustee must amend them to reflect what it considers to be fair and reasonable amounts.

49. While the Board has not yet resolved across what timeframe the trustee fee will be levied so as to accumulate capital up to the Aggregate Cap, the Trustee estimates that there is unlikely to be any adverse impact to members accounts over the short to medium term (the next five financial years). It is forecast that the trustee fee can be initially funded for up to five years from existing reserves which has built up over time and which totalled over $192 million as at 30 June 2021.

50. Even if the maximum amount of the trustee fee was levied over the next two financial years and passed onto members by way of a direct fee, it is estimated that the cost would represent approximately 0.10% of the average member balance as at 30 June 2021. Further, according to industry benchmarking undertaken by an external consultant, SuperRatings, the fees to be charged to members would be reasonable and competitive when judged against its peer group of superannuation trustees.

51. According to Mr Arter’s evidence, the Proposed Amendments will not affect the manner in which member balances are calculated or their entitlement to the balance of their accounts.

52. At a meeting held on 21 September 2021, the Board of the Trustee considered the amendments and unanimously resolved to support the present application, having approved in principle the proposal to make the Proposed Amendments. While the Trustee enjoys an entitlement to receive remuneration under the Trust Deed, it was considered prudent to seek judicial advice concerning the resolution having formed the view that the proposal to vary the Trust Deed is in members’ best interests and the Trustee may have, or appear to have, a conflict of interest in making the Proposed Amendments, on the basis that their effect will be to provide a financial benefit to the Trustee.

Application for judicial advice

53. The Trustee seeks judicial advice under s 63 of the Trustee Act 1925 (NSW) (Trustee Act) or, alternatively, pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), s 4(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) and s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) on the following question:

Would the Trustee be justified in amending the Trust Deed in the manner set out in the Draft Deed of Amendment?

54. The Trustee has also brought an alternative claim under s 81 of the Trustee Act, the Court’s inherent jurisdiction, or s 63 of the Trustee Act 1958 (Vic), s 4(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) and s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW).

Jurisdiction to provide advice

55. The Trust Deed is governed by the law of Victoria (Trust Deed, cl 7.1(f)) and the Trustee is a company registered in Victoria and has its registered office in Melbourne. In written submissions and at the hearing, the Trustee submitted that, despite these matters, this Court has jurisdiction to deal with the Trustee’s application for judicial advice but it would appropriate for the Court to proceed under the Victorian legislation rather than under s 63 of the Trustee Act. I agree.

56. The Trustee submits, and I accept, that it was not inappropriate to bring the application in New South Wales. Cbus is an Australian-wide fund with the 35% of its members located in New South Wales. The application is one of a series of applications brought by superannuation trustees and there are reasons of efficiency for the Trustee to bring the application in New South Wales based on the location of its legal representation and counsel in Sydney.

57. This Court has the power and jurisdiction to give judicial advice as sought by the Trustee in this case under both its inherent jurisdiction and under the cross-vested Victorian legislation: see Re Application of Rinehart (2020) 104 NSWLR 274; [2020] NSWSC 1624 (Rinehart) at [94] in the context of cross-vested Western Australian legislation. The Victorian cross-vesting laws provide that this Court has and may exercise original jurisdiction with respect to matters in which the Victorian Supreme Court has jurisdiction otherwise than by reason of a law of the Commonwealth or of another State: Jurisdiction of Courts (Cross-Vesting) Act 1987 (Vic), ss 3(1), 4(3). Section 9(a) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) provides that this Court may exercise jurisdiction conferred onto it by a cross-vesting law of another State.

58. It has been held that this Court may give judicial advice in respect of foreign trusts under s 63 of the Trustee Act: see, for example, BTA Institutional Services Australia Ltd v BNY Trust (Australia) Registry Ltd [2009] NSWSC 1294 and Re Dion Investments Pty Ltd [2013] NSWSC 1941. However, as Parker J observed in obiter comments in Rinehart, there is room to argue about the correctness of this position and it seems preferable for this Court to proceed under its cross-vested jurisdiction rather than s 63 where the proper law of the trust is that of another State or Territory: at [111]–[113].

59. The power to give judicial advice in Victorian law is contained in r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Vic Rules): Baymill Investments Pty Ltd v Drewlock Pty Ltd [2019] VSC 827 at [75].

60. Rule 54.02 relevantly provides:

54.02 Relief without general administration

…

(2)   Without limiting paragraph (1), a proceeding may be brought for—

(a)   the determination of any question which could be determined in an administration proceeding, including any question—

(i)   arising in the administration of an estate or in the execution of a trust;

(ii)   as to the composition of any class of persons having a claim against an estate or a beneficial interest in an estate or in property subject to a trust; or

(iii)   as to the rights or interests of a person claiming to be a creditor of an estate or to be entitled under the will or on the intestacy of a deceased person or to be beneficially entitled under a trust;

(b)   an order directing an executor, administrator or trustee to—

(i)   furnish and, if necessary, verify accounts;

(ii)   pay funds of the estate or trust into court; or

(iii)   do or abstain from doing any act;

(c)   an order—

(i)   approving any sale, purchase, compromise or other transaction by an executor, administrator or trustee; or

(ii)   directing any act to be done in the administration of an estate or in the execution of a trust which the Court could order to be done if the estate or trust were being administered or executed under the direction of the Court.

61. In Baymill, Sloss J noted (at [75]) that r 54.02 confers on the court the power to give directions to trustees and reflects the long-standing practice that “[w]here an executor or trustee is in doubt as to the course of action it should adopt, it is always entitled to take the opinion of the court as to what it should do”: at [75], quoting Re Atkinson (deceased) [1971] VR 612 at 615.

62. In Ballard v Attorney-General (Vic) (2010) 30 VR 413; [2010] VSC 525, Kyrou J referred to r 54.02 as conferring on the court “very broad powers” and enabling a trustee to seek an order either to approve a transaction or to direct that an act be done in the execution of the trust: at [41].

63. The High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 (Macedonian Church) has emphasised that the only jurisdictional bar to a trustee seeking judicial advice is that it must be able to “point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument”: at [58].

64. In this case, the Trustee seeks advice regarding the management or administration of Cbus in circumstances where there is some uncertainty about the scope of the existing remuneration power contained in the Trust Deed and the proposed course of action, being to make the Proposed Amendments, gives rise to an apparent conflict of interest. As the Court has provided judicial advice in such circumstances (see for example, the cases referred to at [5] above), I am satisfied that the Trustee’s application engages the jurisdiction to provide judicial advice under r 54.02 of the Vic Rules.

Service of the application

65. The Trustee did not serve its application for judicial advice on Cbus’ members. It contends that this approach is consistent with r 54.03(c) of the Vic Rules (and s 63(4) of the Trustee Act). The Trustee submits, and I accept, that service of the application on the members is unnecessary and the application can be dealt with in their absence and without joinder of any other party.

66. Based on the large number of members of Cbus (over 780,000), it can be assumed that giving notice to all members in advance of the hearing of the application may have involved significant cost and lead to delays. I also accept that it can be taken that representatives of members were aware of the application through the directors on the board of the Trustee who were nominated by organisations representing members’ interests and who had knowledge of and supported the application.

67. In addition, prior to making its application, the Trustee had engaged with APRA regarding the nature of and rationale for the proposed amendments. As already noted, APRA appeared at the hearing, provided submissions and did not object to the Trustee’s application.

68. The Trustee’s approach in this regard is also consistent with the approach accepted in similar applications: see, for example, QSuper at [17] (Kelly J); Re Cuesuper Pty Ltd [2009] NSWSC 981 (Cuesuper) at [10]; Re Retail Employees Superannuation Pty Ltd [2013] NSWSC 1681 (Retail Employees) at [13]; LGSS at [55]–[56]; Maritime Super at [82]–[84]; and Motor Trades at [54]–[55].

Consideration and determination of application

69. In exercising the jurisdiction to give judicial advice, the Court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate: Macedonian Church at [104], quoting Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 at 201G.

70. 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 acting in a particular way: Re Application of NSW Trustee & Guardian [2014] NSWSC 423 at [24]–[25], cited in Baymill at [80].

71. Thus, 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 is proper and lawful: Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Limited (2006) 15 VR 87; [2006] VSC 112 (Invensys) at [36]; Chamberlin v Spry [2008] VSC 562 at [14].

72. The Trustee submits that it would be justified in amending the Trust Deed in the manner set out in the Draft Deed of Amendment for essentially four reasons.

73. First, it says that it has an express power to amend the Trust Deed in the manner contemplated and that the Proposed Amendments do not engage any of the express restrictions on the Trustee’s power to amend the Trust Deed.

74. Second, it says that the evidence shows that the Proposed Amendments are being made as a good faith exercise of the Trustee’s power of amendment, upon a real and genuine consideration, and in accordance with the purposes of for which the power was conferred and in a way which appears to it to be fair and equitable in the circumstances.

75. The Trustee submits that, in the context where the Trust Deed already provides a power for the Trustee to charge remuneration, there should be no impediment to it amending the Trust Deed in the manner proposed and any conflict is more apparent than real. In any event, it submits that any conflict is mitigated by the fact that the Trustee is seeking judicial advice before the exercise of the power: Hancock v Rinehart (2015) 106 ACSR 207; [2010] NSWSC 646 at [379]–[383]; Macedonian Church at [104]. It also characterises the benefit conferred on the Trustee and its directors as a mitigated risk of insolvency and moderated exposure of directors to personal liability. These benefits, the Trustee says, are not private gains or profits, but aspects of Cbus’ administration, consistent with the Trustee’s object to serve as trustee of Cbus and the promotion of its beneficial administration.

76. Third, the Trustee submits that, in exercising its power of amendment, the Trustee will comply with its obligations under law, including relevant superannuation legislation and, in particular, the covenants in subss 52(2)(c) and (d) of the SIS Act. This is primarily as it has good and sufficient reasons for making the Proposed Amendments and they are in the best financial interests of members.

77. APRA’s submissions focussed on identifying the legal principles and discretionary considerations which, in APRA’s view, bear upon the Court’s decision about whether to grant the relief sought. They addressed the Trustee’s duties or obligations under general law and the SIS Act, particularly by reference to the covenants under subss 52(2)(b)–(f) (being the covenants relating to the Trustee’s care, skill and diligence, members’ best financial interests, management of conflicts and acting fairly in dealing with beneficiaries) and the matters that the Court would take into account in assessing whether the Trustee’s proposal was consistent with those covenants. APRA’s submissions did not identify any particular concerns with the Trustee’s proposal and acknowledged that the evidence indicated that, in proposing the amendments, the Trustee had considered and included matters relevant to and consistent with its statutory obligations.

78. Fourth, the Trustee submits that the Proposed Amendments are not precluded by the SIS Act Amendments relying, in particular, on the analysis of Kelly J in QSuper at [32] and Button J in HESTA at [73]–[113]. APRA also addressed this issue and concluded that the SIS Act Amendments do not preclude payment of a trustee fee from the assets of Cbus.

Trustee has power to amend and the Proposed Amendments are not inconsistent with express restrictions

79. Under cl 6.7(a) of the Trust Deed, the Trustee has express power to amend, revoke or replace any provisions of the Trust Deed by a supplemental deed or resolution. That power is subject to the Relevant Law (which, as outlined at [23] above, includes the SIS Act) and the other provisions of cl 6.7.

80. The other provisions of cl 6.7 relevantly include restrictions on amendments which:

1. adversely affect a member’s right or claim to accrued Benefits, or the amounts of those accrued benefits, unless they are consistent with the Relevant Law: cl 6.7(b); or

2. authorise the making of any payment to an Employer out of the Fund, unless they are consistent with the Relevant Law: cl 6.7(c).

81. As the Trustee submits, the Proposed Amendments could not adversely affect “accrued benefits” or the amount of “those accrued benefits” as the amendments will not affect the manner in which member balances are calculated or the members’ entitlement to the balance of their accounts (as noted at [51] above). As such, the Proposed Amendments do not engage the restriction in cl 6.7(b).

82. As to cl 6.7(c), it only operates where the Trustee is an “Employer” for the purposes of that clause. It is not clear that the Trustee is such an “Employer”. While the Trustee makes superannuation contributions to Cbus in respect of its own employees, the Trustee has not been able to locate any records that confirm whether the Trustee falls within the definition of “Employer” within the meaning of clause 7.2 of the Trust Deed.

83. Even if the Trustee were an “Employer”, cl 6.7(c) does not apply where a payment is consistent with the Relevant Law. As the Trustee submits, even assuming it is not already authorised by cl 1.1(g) of the Trust Deed, the new proposal for a trustee fee payment is consistent with s 117(4) of the SIS Act. There is evidence to show that it is a reasonable amount to be paid out of a fund for services rendered in connection with the management or operation of the fund by the Trustee: see for example, the matters referred to at [44]–[50] above.

84. Another relevant consideration is the nature and extent of the existing remuneration power in cl 1.1(g) in the Trust Deed (as set out at [22] above).

85. As the Trustee submits, the remuneration power in cl 1.1(g) is expressed in broad terms; it entitles the Trustee to receive remuneration and to recover costs and disbursements incurred in respect of the provision of its services as Trustee as the Trustee determines. In my view, as a matter of construction, that clause would enable the Trustee to not only recover its costs but to also charge a fee for the services it provides as trustee, which would be paid by way of remuneration. That fee would have to be fair and reasonable having regard to the nature of the services provided by the Trustee but would not, in my view, be restricted to a fee on a cost recovery basis.

86. It follows that, as a matter of construction, cl 1.1 (g) of the Trust Deed does not preclude the Trustee from levying a fee of the type contemplated by the Draft Deed of Amendment. The proposed fee falls within the concept of remuneration in respect of the services which the Trustee provides as trustee, those services carrying with them the inevitable risk of exposure to liabilities including penalties incurred in the ordinary course of acting as trustee. For the reasons referred to at [44]–[50] and as set out below, it is also a fee that is fair and reasonable, and the exercise of the Trustee’s amendment power to introduce a specific and certain fee is not inconsistent with the Trustee’s legal and statutory obligations under the SIS Act.

Proposed Amendments are not inconsistent with SIS Act Amendments

87. In Motor Trades, I considered whether the SIS Act Amendments prohibited a trustee’s proposal to amend a trust deed to introduce a new power to pay a trustee fee out of the assets of the fund. As in this case, the proposal in Motor Trades provided for a fee to be payable to the trustee up to a limit calculated as a percentage of the net assets of the fund, subject to a cap on the amount of capital that can be accumulated by the trustee, with reviews to be undertaken, in that case, on a triennial basis.

88. My reasons for concluding that the Motor Trades proposal was not inconsistent with or precluded by the SIS Act Amendments are set out at [70]–[77] of that judgment. They apply to and address the submissions raised by the Trustee and APRA on this issue. For essentially the same reasons, I accept the submissions of the Trustee and APRA that the SIS Act Amendments do not prohibit the outcome sought to be achieved by the Proposed Amendments.

89. In my view, the charging of a fee which enables capital to be built 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. The fee charged may prove to be insufficient, or excessive, to cover the extent of the liability.

90. Further, and as the Trustee submitted, in this case it is difficult to see how ss 56(2) and 57(2) of the SIS Act could be contravened by an amendment that seeks to cut down an existing broad remuneration power into a focussed and more restricted power.

The Trustee is otherwise justified in making the Proposed Amendments

91. As the Proposed Amendments are not inconsistent with the SIS Act Amendments and the power exists for the Trustee to make them, the remaining issues concern the propriety of the exercise of the Trustee’s power and whether it is consistent with the discharge of the Trustee’s legal duties, including under the SIS Act. Based on the material before the Court and the submissions made, and for the reasons set out below, I am satisfied that the Trustee would be reasonably justified in exercising the power of amendment to make the Proposed Amendments and that such an exercise would not be improper or inconsistent with the Trustee’s duties.

92. It is clear that changes to the regulatory and enforcement environment have led to a material increase in the liabilities and financial risks facing the Trustee and, as a consequence, to Cbus’ members. As Kelly J noted in QSuper, prior to the SIS Act Amendments, ss 56(2) and 57(2) were understood to allow superannuation fund trustees and directors of trustees to indemnify themselves for liabilities they incurred by acting as trustee or director, even those incurred in breach of trust (except for those attributable to dishonest, intentional or reckless conduct) or a liability with respect to a statutory penalty: at [29]. When the SIS Act Amendments take effect, there will be a range of potential liabilities for which the Trustee and its directors will be unable to be indemnified from the assets of Cbus.

93. I accept the Trustee’s submission that it proposes to exercise its power to amend the Trust Deed in good faith and for a proper purpose upon a real and actual consideration of its position. The purpose, in the sense of the substantial object forming the real ground of the Proposed Amendments, is to provide clarity on the existing remuneration power in cl 1.1(g) of the Trust Deed in order to permit the Trustee to continue functioning in the face of heightened financial risks and to secure the competent administration of Cbus. As the Trustee submits, it is seeking to amend the Trust Deed to provide for a fee of a type to which it is already entitled under its existing remuneration power. The key effect of the Proposed Amendments is to cut down the breadth of the existing remuneration power into a more focussed one so to enable the Trustee to perform its duties and provide certainty to the Trustee and to members.

94. The matters referred to at [35]–[52] above demonstrate that the Trustee has given genuine consideration to the issues raised by the Proposed Amendments and has acted responsibility in preparing its proposal. It has, amongst other matters, obtained advice from independent external experts and external legal advisors and engaged with the regulator. It has also identified sound reasons for why the Proposed Amendments are in the best financial interests of Cbus’ members, in particular, the financial risks to the Trustee, its directors and Cbus and concomitant financial detriment to its members in the event of the Trustee’s insolvency.

95. A relatively broad and practical approach should be adopted when assessing whether the Proposed Amendments are in the best financial interests of the members of the Fund for the purposes of s 52(2)(c) of the SIS Act. Regard should be had to the interests of both present and future members and the commercial and practical realities of the superannuation industry generally: QSuper at [36], citing Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521; 138 ACSR 459 (APRA v Kelaher) at [61]–[65] and Invensys at [110]–[120]. The question for the Court is not what is in the best financial interests of members, but whether the decision of the trustee to consent to the Proposed Amendment is reasonably justifiable on that basis in the sense that there are good and sufficient reasons in support of it at the time it was made: APRA v Kelaher at [64]; QSuper at [36].

96. The Trustee’s inability to satisfy potential future liabilities from its own capital reserves, even a modest civil or administrative penalty for which it could not be indemnified from trust assets by reason of the SIS Act Amendments, exposes Cbus’ members to possible financial detriment in the event that the Trustee becomes insolvent. The proposed fee will allow the Trustee to build up a pool of personal capital, mitigate the risk of its insolvency, and thereby reduce the risk of members incurring costs in the event of any such insolvency, such as the costs associated with a successor fund transfer (if one becomes necessary), obtaining short term liquidity by realising assets at an undervalue, and disruption to the business of administering Cbus.

97. It is consistent with the best financial interests of members for the Trustee to take steps to provide it with access to personal capital to ensure the due and proper administration of Cbus and the Trustee, one aspect of which is the protection against the risk of the Trustee becoming insolvent: QSuper at [38]. This is particularly as the evidence indicates that the impact to members of charging the proposed fee is expected to be minimal. The surplus in Cbus’ reserves should be sufficient to pay the proposed fee over a period of up to five years and the amount of the fee per member has been independently assessed as reasonable and competitive with other comparable superannuation funds.

98. It is also consistent with the best financial interests of members for the Trustee to create an environment that enables it to attract and retain qualified persons to serve as directors and minimise the potential for distorted decision making at the board level: HESTA at [71]. The Trustee has also identified that it is unlikely that a qualified replacement trustee would be willing to be appointed without the Proposed Amendments being made, or a similar power having been exercised, as the replacement trustee would face the same risks as presently identified by the Trustee.

99. Consistent with its duties, the Trustee has also explored other means of establishing sufficient financial resilience or otherwise mitigating relevant risks before imposing a fee upon members. They include the ability to generate its own financial resources and the availability of shareholder support and insurance cover.

100. I am also satisfied that the Trustee’s design and adoption of the Proposed Amendments has been undertaken in a manner consistent with its duties to act with care, skill and diligence under s 52(2)(b) of the SIS Act. The evidence indicates that the quantum of the Biennial Limit and Aggregate Cap has been set by reference to the likelihood of the Trustee incurring penalties having regard to its risk controls. They have been independently assessed as fair, reasonable and consistent with industry benchmarking and fees proposed to be charged by trustees of similarly sized superannuation funds. They are also subject to periodic review according to a mechanism that limits the amount of the Trustee Fee to what the Trustee considers to be fair and reasonable.

101. While the Aggregate Cap has been set at an amount which provides an additional confidence level by forecasting a breakdown in the control mechanisms, as APRA submits, there is no evidence to suggest that the Trustee’s purpose is to accumulate a larger than necessary reserve in place of proper risk management controls or exclude any residual risk to the Trustee. There are also other controls which have the effect of restricting the Trustee’s use of the fee and accumulated capital, such as the provisions of the Trustee’s Articles of Association (as those referred to at [18] above).

102. I also accept that the Proposed Amendments do not give rise to an impermissible conflict contrary to s 52(2)(d) and are consistent with the duty to act fairly in dealing with members and classes of members of the fund in subss 52(2)(e) and (f), including for the reasons referred to at [49]–[51] above.

103. While equity has historically expected trustees to act gratuitously and they have a duty to administer a trust with as little expense and as much profit as possible, the SIS Act recognises that a corporate trustee of a superannuation fund ordinarily conducts a business for reward and will be entitled to payment for its services, such that the charging of a fee is not, in and of itself, preferring the trustee’s interests over that of a beneficiary.

104. The profit-to-member structure of the Fund and the fact that Trustee has not previously exercised its right to receive remuneration per se (as distinct from payment of a trustee fee to cover the cost of remunerating directors) are factors to which regard should be had. That said, I accept the Trustee’s submission that the breadth of the existing remuneration power and effect of the proposal, which is to narrow that power, makes it difficult to conclude that the Trustee is pursuing its own interest in conflict with those of Cbus’ members.

105. As APRA’s submissions identify, where a trustee has a personal interest in a matter and obtains a benefit of some kind as a result of the conduct in question, a trustee may comply with its obligation to avoid conflicts if the conduct in question is shown to be in the best financial interests of beneficiaries.

106. The Proposed Amendments may have the effect of enabling the Trustee to accumulate a pool of personal capital and an income in excess of its immediate expenses, but it does not follow that the Trustee is securing a private gain or profit to the Trustee in conflict with its duties to members. In this case, any benefit conferred on the Trustee and its directors is in mitigating against the risk of insolvency and moderating the directors’ exposure to personal indemnity, which are incidental to the primary purpose of ensuring the continuing administration of Cbus and its ongoing stability. It is also consistent with the Trustee’s object to serve as trustee of the Fund and made necessary by the regulatory context in which the Fund is administered. In that context, as a matter of substance, the Proposed Amendments do not confer any private gain or personal profit on the Trustee or its directors at the expense of members, or an advantage of the type which was not already contemplated by cl 1.1 (g) of the Trust Deed.

107. In any event, any perceived conflict is mitigated by the Trustee’s application for judicial advice: see HESTA at [6].

Conclusion

108. For these reasons, I am satisfied that the Trustee is justified in making the Proposed Amendments and will grant the relief sought under the cross-vested Victorian legislation. It follows that it is unnecessary to consider the Trustee’s alternative claim for relief under s 81 of the Trustee Act, the Court’s inherent jurisdiction, or s 63 of the Trustee Act 1958 (Vic), s 4(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) and s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW).

Confidentiality orders

109. The Trustee seeks confidentiality orders pursuant to the Court’s inherent jurisdiction or under the Court Suppression and Non-Publication Orders Act 2010 (NSW) (Court Suppression Act) in relation to certain material on this application.

110. At the hearing on 10 November 2021, the Court made orders preserving the confidentiality of certain materials relied on by the Trustee in support of its application until further order of the Court (as identified in Annexure A to the orders). The Trustee has filed supplementary submissions on confidentiality, filed an additional affidavit from Mr Geoffrey Sanders affirmed on 18 November 2021, and provided draft orders which revise the Trustee’s claims for confidentiality to the material identified in Annexure A to Mr Sanders’ affidavit (Revised List). APRA has also provided supplementary submissions on confidentiality.

111. Mr Sanders’ affidavit identifies the nature of the confidential information referred to in the Revised List and the basis upon which orders preserving the confidentiality of the material are sought. The information falls into two categories.

112. The first category is information that is subject to a claim of legal professional privilege and comprises an opinion of counsel prepared for the Trustee for the purposes of the application: Revised List, item 1.

113. The second category is information confidential to the Trustee on the grounds of commercial sensitivity which comprises:

1. Information regarding the Trustee’s insurance arrangements, such as details of the coverage limits, sub-limits for particular claims, excesses payable under the Trustee’s current policy, the premium paid by the Trustee, expenses incurred in relation to insurance and other insurance policy terms: Revised List, items 3, 4, 5, and 13. This information is generally available only to the Trustee, its insurers and insurance broker, a limited number of external services providers on a confidential basis. It has been shared with APRA on this application but is otherwise not made public. The information is commercially sensitive as it reflects the outcomes of commercial negotiations between the Trustee and its insurers, and its disclosure may place the Trustee at a commercial disadvantage in future commercial negotiations and thus cause financial harm to the Trustee (and its members).

2. Confidential internal documents of the Trustee, such as the Trustee’s Operational Risk Financial Requirement Strategy, Remuneration Policy and Risk Management Strategy: Revised List, items 12, 14, 22, 23 and 26. These documents are generally available only to the Trustee, have been shared with APRA on this application, and are otherwise not public. They comprise the Trustee’s intellectual property and set out internal strategic matters, the disclosure of which to the Trustee’s competitors may place the Trustee at a commercial disadvantage and thus cause financial harm to the Trustee (and its members).

3. Opinions and reports prepared for the Trustee by its advisors for the purposes of this application or information contained in those documents, including the Trustee’s Risk and Finance Methodology Report, the PricewaterhouseCoopers report, the market analysis report by SuperRatings, and the estimated costs associated with the various insolvency scenarios: Revised List, items 2, 6, 8, 10, 11, 16, 17 and 18. These documents and information are generally available only to the Trustee and its external advisors engaged for the purposes of this application, have been shared with APRA on this application, and are otherwise not publicly available. They contain detailed information about the Trustee’s internal commercial matters relating to its financial position, taxation arrangements, and approach to compliance, the disclosure of which to the Trustee’s competitors may place it at a commercial disadvantage and thus cause financial harm to the Trustee (and its members).

1. Board minutes which disclose the content of strategic discussions and deliberations held in confidence and refer to, amongst other matters, to information in the categories outlined above: Revised List, item 27. The minutes are generally available only to the Trustee and its external advisors engaged for the purposes of this application, have been shared with APRA on this application on a confidential basis, and are otherwise not publicly available. The disclosure of the information may place the Trustee at a commercial disadvantage and thus cause financial harm to the Trustee (and its members).

114. The Trustee no longer claims confidentiality orders in relation to items 7, 9, 15, 19, 20, 21, 24 and 25 of Annexure A to the 10 November 2021 orders.

115. The Trustee submits that the Court has power to make orders protecting this confidential information as part of its inherent jurisdiction 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 476. It referred to the exercise of the power to preserve confidential information in an application for judicial advice in this Court in Re Perpetual Investment Management Ltd [2014] NSWSC 784 at [5].

116. Under s 7(b) of the Court Suppression Act, the Court also has power to prohibit or restrict the publication or other disclosure of information that comprises evidence, or information about evidence, given in proceedings before it.

117. The grounds for making an order under s 7 relevant to this case require the Court to be satisfied that a suppression or non-publication order is necessary to prevent prejudice to the proper administration of justice: Court Suppression Act, s 8(1)(a).

118. What is “necessary” for the purposes of s 8(1) of the Court Suppression Act depends on the particular ground relied on, the nature of the order sought, and the factual circumstances said to give rise to the order: Fairfax Digital Australia and New Zealand Pty Ltd v Ibrahim (2012) 83 NSWLR 52; [2012] NSWCCA 125 at [8] (Bathurst CJ), [46] (Basten JA); D1 v P1 [2012] NSWCA 314 at [48].

119. In deciding whether to make a suppression or non-publication order, the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: Court Suppression Act, s 6.

120. As APRA submitted, open justice requires that proceedings be fully exposed to public and professional scrutiny and criticism to maintain public confidence in the integrity and independence of the courts. However, the principle is not absolute: Hogan v Hinch (2011) 243 CLR 506; [2011] HCA 4 at [20].

121. The weight to be given to the public interest in open justice may vary depending on the nature of the proceedings. It will be relevant 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. The proper conduct of trustees is a matter that warrants public scrutiny: Welker v Rinehart [2011] NSWSC 1094 at [17]; Rinehart v Welker (2011) 93 NSWLR 311; [2011] NSWCA 403 at [52].

122. Applying the principles set out at [115]–[121] above, I accept the Trustee’s submissions that confidentiality orders should be made in respect of the items identified in the Revised List.

123. As to item 1, the counsel opinion is plainly privileged and confidential. As the Trustee submits, a confidentiality order should be made in the Court’s inherent jurisdiction given it is not clear whether the opinion is “evidence” or “information about evidence” to which s 7(b) of the Court Suppression Act would apply.

124. Based on the evidence from Mr Sanders, I am satisfied that the information referred to at [113] is confidential to the Trustee and that it is necessary to prevent prejudice to the proper administration of justice for the Trustee to gain some protection for that information. The information was relevant evidence at the hearing and went beyond what Cbus and the Trustee are obliged to disclose publicly pursuant to statutory and general law obligations. Its public disclosure could cause prejudice and be adverse to members’ interests if no suppression order is made. A suppression order may be necessary in that sense as the proper administration of justice requires the Court to be informed on relevant aspects of a party’s dealings, including its confidential information and, absent a suppression order, the party could be exposed to the risk that its confidential information could become public and be exploited by competitors: Telstra Corp Ltd v NBN Co Ltd [2014] NSWSC 940 at [91]–[93].

125. While an application for judicial advice is not exempt from the operation of the Court Suppression Act and such applications are heard and determined in open court, the jurisdiction is in the nature of giving private advice that functions to provide personal protection to a trustee rather than to determine a dispute between competing litigants: Macedonian Church at [64]. As the Trustee submits, by its very nature, judicial advice often requires the disclosure of privileged, confidential and commercially sensitive material to the Court: Re Application of Perpetual Trustee Co Ltd [2003] NSWSC 1185 at [14].

126. Further, the confidential information is only a subset of the material relied on. The reasons for and basis on which the Proposed Amendments are to be made are detailed in these reasons by reference to evidence over which no suppression order is sought.

127. The above matters are, in my view, factors relevant to the balancing exercise and the assessment required by the Court Suppression Act and support the conclusion that the public interest in open justice should not dictate the disclosure of all the evidence in this case.

128. Sections 11 and 12 of the Court Suppression Act require that an order specify the place where it applies and the duration of the order.

129. The Trustee submits, and I accept, that the order under the Court Suppression Act should apply throughout the Commonwealth given that Cbus operates and has members throughout Australia, competes in an Australia-wide industry, and Cbus and the Trustee would suffer prejudice from disclosure of the commercially sensitive information anywhere throughout Australia.

130. As to the duration of orders sought, the Trustee submits, and I accept, that the Court should make suppression orders which are coterminous with Cbus, in that they should apply unless and until the Trust Deed terminates. Such an order is appropriate having regard to the existing statutory and general law disclosure obligations, the necessity for the Trustee to disclose information concerning its deliberations on the matters the subject of this application, and because the passage of time may not dilute the adverse consequences which could follow from disclosure. It is also consistent with the approach I adopted in Motor Trades at [114]. See also LGSS at [174] and [188]–[189] and Maritime Super at [226].

Orders

131. For these reasons I make the following orders:

1. Pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), s 4(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) and s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), the opinion, advice and direction of the Court is that the Plaintiff would be justified in amending the trust deed of Construction and Building Unions Superannuation Fund (the Fund) in the manner set out in the Draft Deed of Amendment which is at pages 790 to 797 of Exhibit JRA-1 of the affidavit of Justin Roland Arter affirmed 20 October 2021.

2. The costs arising out of and incidental to the Plaintiff’s Summons be paid out of the assets of the Fund on the trustee basis pursuant to s 66 of the Trustee Act 1958 (Vic), s 4(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) and s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW).

3. Vary Orders 2 and 3 made on 10 November 2021, with the intent that they are replaced with Orders 4 to 9 below with effect from 20 December 2021.

4. In the Court's inherent jurisdiction, the document identified in item 1 of Annexure A to the affidavit of Geoffrey Hans Sanders affirmed 18 November 2021 (Sanders Affidavit) is not to be disclosed by publication or otherwise, is not to be accessed by any non-party and is to be kept confidential and stored on the court file in a sealed and appropriately marked envelope.

5. Pursuant to s 7 of the Court Suppression and Non-publication Orders Act 2010 (NSW) (Act), 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 (except the document referred to in and which is subject to Order 4 above).

6. Pursuant to s 12 of the Act, the suppression order in Order 5 above operates until the termination of the Trust Deed dated 29 May 1984 constituting the Fund.

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

8. The Plaintiff has leave to file copies of the Plaintiff's Outline of Submissions and affidavits with the Plaintiff's Confidential Information redacted.

9. Applicants for non-party access may be given access to the redacted materials filed in accordance with Order 8 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 the Australian Prudential Regulation Authority in these proceedings.

Documents means documents or parts of documents which are identified in items 1 to 6, 8, 10 to 14, 16 to 18, 22, 23, 26 and 27 of the materials identified in Annexure A to the Sanders Affidavit (but excluding items 7, 9, 15, 19, 20, 21, 24 and 25).

**********

Annexure A – Schedule to Draft Deed of Amendment

Insert the following definitions in clause 7.2:

"Reference Period" has the meaning ascribed to it in clause 1.7(e).

"Review Period" has the meaning ascribed to it in clause 1.7(e).

"Trustee Capital" has the meaning ascribed to it in clause 1.7(e).

"Trustee Fee" has the meaning ascribed to it in clause 1.7(e).

Insert the following clause after clause 1.6:

1.7 Trustee Fee

(a)   For each Reference Period, a fee is payable out of the Fund to the Trustee for acting as Trustee in an amount equal to 0.10% of the net assets of the Fund (calculated as at 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 clause 1.7:

(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)   0.14% of the net assets of the Fund as the payment date; and

(B)   such maximum amount (if any) of Trustee Capital (by whatever name known) as the Relevant Law requires or as a Regulator permits, recommends, requests or directs the Trustee to hold; and

(ii)   the Trustee may otherwise determine in its absolute discretion to reduce, waive, suspend or postpone the Trustee Fee (or any part of it) and, subject to clause 1.7(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 clause 1.7(a) and/or by reason of the operation of clause 1.7(c)(i)(A) remains fair and reasonable; and

(ii)   in the event that the Trustee considers pursuant to cl 1.7(d)(i) that the Trustee Fee payable under clause 1.7(a) and/or by reason of the operation of clause 1.7(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 clause 1.7(a) and/or by reason of the operation of clause 1.7(c)(i)(A)); and

(B)   amend this Deed by adjusting the figures in cl 1.7(a) and 1.7(c)(i)(A) to accord with the determination in cl 1.7(d)(ii)(A).

In undertaking such consideration, the Trustee 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.

(e)   For the purpose of this clause 1.7, a reference to:

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

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

(iii)   Trustee Fee is to a fee payable under this clause 1.7; 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.

Delete the words 'to receive remuneration' in clause 1.1(g), so that it reads as follows:

Subject to the Relevant Law, the Trustee shall be entitled to receive remuneration and to recover costs and disbursements incurred in respect of the provision of its services as Trustee of the Fund as the Trustee determines.

Decision last updated: 21 December 2021