Beck v Commonwealth Bank Officers Superannuation Corporations Pty Limited & Ors

[2017] HCATrans 56

[2017] HCATrans 056

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S228 of 2016

B e t w e e n -

PETER BECK

Applicant

and

COMMONWEALTH BANK OFFICERS SUPERANNUATION CORPORATIONS PTY LIMITED

First Respondent

COMMONWEALTH BANK OF AUSTRALIA

Second Respondent

COLONIAL STAFF SUPER PTY LTD

Third Respondent

Application for special leave to appeal

GAGELER J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 MARCH 2017, AT 9.30 AM

Copyright in the High Court of Australia

____________________

MR A.J.L. BANNON, SC:   If it please the Court, I appear with my learned friends, MS J.F. MERKEL and MR C.B. GREGORY, for the applicant.  (instructed by Slater and Gordon Lawyers)

MR B.W. WALKER, SC:   May it please your Honours, I appear with my learned friends, MR S.M. NIXON, SC and MR J.J. HUTTON, for the first and second respondents.  (instructed by Jones Day)

GAGELER J:   I note there is no appearance for the third respondent.  Mr Bannon.

MR BANNON:   If it please the Court.  May I address your Honours as the first issue, the question of the interpretation of the expression “value of benefits accrued” in the amending clause of the trust deed, and just to remind your Honours of the particular provisions.  At 166 of the application book appears the ‑ ‑ ‑

GORDON J:   You mean 165, do you not?

MR BANNON:   Yes, 165, I am sorry – that is 11.3 and the amending clause is at 160.

GAGELER J:   Yes, 33.2.

MR BANNON:   Yes.  What we submit to your Honours is that as a member of the super fund, prior to the relevant amendment in December 1996 and as an employee of the relevant companies, Mr Beck and other employees could look forward to, firstly, if he stayed employed and reached 55 years of age and then retired, a pension on the post‑55 provision; secondly, if he stayed employed and reached 62 years of age and then retired, a pension or lump sum calculated under the 62 and following provision; but, thirdly, if he did not stay employed beyond that period but stayed long enough and, for example, was retrenched without cause, as occurred here, prior to 55, the right to be considered for the 11.3 benefit, provided his service was long and he could display exceptional circumstances.

GORDON J:   But they are not the only contingencies, are they?

MR BANNON:   He has to retire – 11.3 he had to retire; secondly, he had to display long service; thirdly, he had to display exceptional circumstances and there was a discretion even in those circumstances for the trustee to grant a benefit and it required the approval of the company.

GORDON J:   And picked up at the fifth one, that there had to be no other benefit payable under any other provision of the deed.

MR BANNON:   That was the case here as well.  That almost inevitably followed because you would not be a candidate under 11.3 – you would only be a candidate under 11.3 if you had retired before 55.

GORDON J:   Did that include the augmentation power?  Is that another contingency?

MR BANNON:   I suppose it may depend on the timing, as to whether or not that had actually been granted at the time, but it is conceivable that a trustee may take into account whether or not an augmentation benefit was to be provided.  But as the primary judge has just pointed out, the augmentation benefit is quite different.

GORDON J:   And it still exists.

MR BANNON:   Quite, but it is contingent on a direction of the company initiating it, firstly, and, secondly, the likelihood that funds may be required by the company.  Against that background of those three provisions ‑ and one might add the fourth, the augmentation, at least – we would submit that was an interrelated package of rights or benefits.  It provided that package and incentive to Mr Beck and other employees in this position to be loyal in service and to do as best he can and to give the company no reason to terminate him for cause and to perform exceptionally.

Each of them had in common a first contingency that Mr Beck had to be retired, but while that may be described as a contingency it was not one which might or might not occur.  It was inevitable that every employee would ultimately retire.  It is like death:  sooner or later they must retire.

Each of the three benefits had a contingency related to length of service and was different and an employee terminable on six month’s notice, as Mr Beck, he could not control that contingency but he could control the circumstances that he would work faithfully, not give cause, and justify exceptional circumstances.

There is no definition in the trust deed or the relevant Act of “benefit”.  Indeed, there is no definition of “accrued”.  It is a word widely used – that is to say “benefit” in each of the provisions and the Act.  The question becomes as a first step in the argument:  can one reasonably describe these interrelated provisions, including the one with which we are particularly concerned, 11.3, as benefits of being an employee and a member of the trust fund?  In each case, there is a contingency but that is common to all of them, albeit they are different.

We submit a proper way of testing the argument that we put forward is to look at the 55‑year‑old benefit.  So that if someone is after 55 still with the company, there is still a contingency, namely he or she has not retired.  Can there be said in that circumstance to be an accrual of a benefit represented by the time served and fidelity to the company and not being retrenched beforehand?  We say that is something which one could reasonably conclude.

Equally, prior to 55, can there be said to be an accrual of a benefit represented by the time served and exceptional service?  In the same way, we say it can be.  If each of those provisions can be described as a benefit inuring to a continuing member, then the notion of accrual of such a benefit attracts, we say, its ordinary meaning of accumulation or increase.

The Court of Appeal chose not to answer the question as to whether someone who was over 55 had an accrued benefit.  It does not say that is an ideal example for testing the argument.  There is no entitlement to the benefit in the sense there is no retirement.  It is continuing to accrue year after year in terms of the amount, the calculation, subject to the fund being solvent and the rest. 

It is difficult, we would submit, in those circumstances, to conclude it is not an accruing or accrued benefit and could that, on the approach of our learned friends, we say, and on the reasoning of the Court of Appeal, inevitably it would be that that benefit could have been amended notwithstanding the provision in clause 33.2 which protected such an amendment. That is an odd outcome, we respectfully submit.

GAGELER J:   This is all a question of the construction of these particular provisions of this particular trust deed.

MR BANNON:   That is right, exactly.

GAGELER J:   You have to get over that hurdle and then you have to get over another hurdle, do you not – that is, the successor provisions, the accrued benefits provisions of the SIS regulations?

MR BANNON:   Yes.  The answer to that is this.  First of all, on any view there is a claim against the original trustee, which still exists.  It is in liquidation but it was restored for the purposes of these proceedings, but there has been no suggestion that is going to be a hollow victory.  We know as a matter of fact that this resulted in an affidavit recently filed in that proceeding that there exists, as one would expect, indemnities which track through from trustee to trustee in relation to any claim against the fund.

There is no suggestion that that would not be of value and it has not been said by our learned friends.  That would be a claim for compensation based on breach of the amending power and/or breach of trust, which would sound in equitable compensation, which would have a value representing the loss of the opportunity he would have had, which would be assessed by the court. 

When we go to the facts of the case and see that he did provide exceptional service many of the facts which supported the estoppel findings by his Honour – he had long service.  One should add that the fund was well in surplus.  There is no logical reason for a trustee not to favourably consider that.  He lost that opportunity.  That would sound in compensation.

Secondly, the transfer of fund provisions:  the only way the fund could have been transferred from fund to fund would be if each successive trustee, including the current trustee, had agreed successfully that a member would enjoy the same benefits – that is, agreed trustee to trustee – and entitlements under the previous fund.

If there had been a breach of trust by the original trustee, that is an entitlement or a right which Mr Beck had as against the original trustee, which inevitably, by the successive fund transfers each succeeding trustee agreed that that trustee, by reference to the trust funds, would be liable.

GAGELER J:   Was that particular argument put to and dealt with by the Court of Appeal?

MR BANNON:   I think the answer is, as we have said in our submissions, his Honour proceeded on the basis that there was no argument or issue that the current trustee was liable ‑ ‑ ‑

GORDON J:   It was assumed.

MR BANNON:   The primary judge took the view that there was no argument before the court, the trial, that the current trustee was liable.  Now, the Court of Appeal said no.  They went through it and said that his Honour was incorrect about that, but as to whether the precise formulation I put, I cannot say that it was but on the other hand it is in the circumstance where it does not appear to be widely challenged and on the basis of – I am saying this from recent information – the existence of indemnities, that is completely understandable.  It is not going to make any difference.

The focus of course there was on an estoppel, which would see the provision enter into effectively the current form of the trust deed, which the Court of Appeal has rejected, and we only pursue that in relation to the estoppel case.  So we say that is not a difficulty with the case.

Secondly, those arguments in relation to the interpretation of “value accrued” would also apply in relation to the statute as well - also the regulation which has a wider significance.  The short point is:  is this an issue worthy of the Court’s consideration and looking at the expression “value of benefits accrued”, to regard that as something which, because of the existence of a contingency, one of which is retirement, which seems to be one of the key matters the Court of Appeal relied upon, means that provisions such as these can be amended contrary to a clause such as the amendment clause and contrary to the regulation, in circumstances where all of these benefits are incentives for somebody to keep on working.

The effect of the Court of Appeal’s approach to this clause is to say it is only if something is vested in right and it is only going to happen if they have retired.  So the effect of the amendment provision, which is directed to protect members’ benefits, which would include people who are still being employed and operating under these incentives, to say the only protection is for people who are no longer employed.  We say that is an odd outcome.

Could I refer to the amendment, assuming we are wrong or the Court of Appeal was right in relation to the meaning of “value of benefits accrued”.  We say in any event there was a clear breach of trust in the amendment which was found by the Court of Appeal to be simply for the purpose of addressing anti‑discrimination concerns.  That appears at AB 44 at paragraphs 128 and 129.

The Court of Appeal referred to that finding at AB 166, paragraph 17, without demur.  Then the primary judge found that the anti‑discrimination reason was not a justifiable reason.  The primary judge found that – we have given your Honours the reference in the application book but the Court of Appeal addressed it in 123 to 125, that is at 227 – sorry ‑ ‑ ‑

GORDON J:   At 195.

MR BANNON:   Thank you, your Honour.  At 123 the court said – the Chief Justice said, with whom the others agreed:

The memorandum –

from the in‑house solicitor:

does not make it clear that cl A11.3 itself infringed the provisions of the . . . legislation.  I am of the opinion, in those circumstances, that if the amendment in fact affected accrued benefits, it could not be justified on –

this ground and then goes on to find, as the primary judge did, that that was not a valid reason for requiring the amendment.  But then we say – one comes then to 138 which is the gravamen of the Court of Appeal’s reasoning on this issue at page 199 of the application book.  It says:

the trustee exercised the power of amendment on legal advice that the amendment had no effect on accrued benefits –

Well, that is not a positive reason to do it.  That is just simply – it shows there is no impediment to doing it:

and that it was necessary to comply with the provisions –

Now, the court found that it was not necessary to comply with the provision and, indeed, at 123, on the face of the memorandum it did not suggest that.  This brings into stark ‑ ‑ ‑

GORDON J:   Is that right, given the last sentence in 138?

MR BANNON:  

The explanation for the removal of cl A11.3 was given in that context.

But going back to 123 it says “it could not be:

The memorandum does not make it clear that cl A11.3 itself infringed –

on the face of the memorandum.  That is 123.

GORDON J:   Then it follows in 139 that the Chief Justice concludes that it was not shown that the trustee failed in their duties.

MR BANNON:   But the issue which has arisen in Karger v Paul – it has been referred to by Justice Nettle in the Alcoa Case is this:  under a trust for superannuation, does the trustee have to be properly informed?  We say that a sterner test is applicable as was suggested, possibly in Finch, but even in Finch this Court said that to the extent that the trustee must be properly informed before making a decision that is a rigorous requirement.

Now, here, there was only one reason, positive reason for doing the amendment and that was anti‑discrimination.  That was wrong.  So put briefly, the trustee was not properly informed.  Let us assume – leaving aside “on the face of the memorandum” point, but let it be assumed that the advice said yes, you need to do this, but the advice was wrong.  The fact of the matter is they were not properly informed.

So the only way you can defend it is on a classic Karger v Paul basis and say, well, they did their best.  The question is, and a question for this Court is, is that good enough in circumstances where it has been found, and there is no dispute about this, that there was not in fact a proper basis.  If there was not a proper basis they were not properly informed.

GORDON J:   What do we do about the augmentation element of the Chief Justice’s analysis?

MR BANNON:   The augmentation element – there is no evidence to suggest that that was taken into account by the trustees.  There is no reason which supported that conclusion.

GORDON J:   I think your client’s expert agreed, did he not, that it could be still used?

MR BANNON:   But the question on the breach of duty by the trustee is did the trustee proceed on a properly informed basis.  The only matter which they took into account, on the evidence and on the findings, was the incorrect information in relation to anti‑discrimination.  The augmentation is something the Court of Appeal referred to in paragraph 39, but not by reference to any reasons given by the trustee. 

There is no evidence to support a conclusion, and nobody gave evidence for the trustee obviously, to say we took that into account.  There are very good reasons why you think they would not have said that because of the reasons which the primary judge gave as to why 10.1 is no substitute for 11.3. 

As the primary judge said, firstly, it has to start with a direction from the company; secondly, it may involve additional funds being put forward; thirdly, it has no preconditions which satisfied, as in 11.3, which make it

more difficult, we would say, from the trustee’s point of view, to reject the application.  In other words, 11.3 sets out preconditions which, if you can satisfy them objectively, long service and exceptional circumstances, and there is a large surplus in the trust fund, there has to be very good reason for the trustee not to grant that.  You do not have any of those protections in 10.1.

But coming back to your Honour’s question, the short point is that is not referred to in any of the material which it is suggested the trustee took into account.  My additional reasons are put forward just to say well, there is good reason to think nobody would have put that forward as a reason for getting rid of 11.3 and, as his Honour says, 11.3 was in there at a time when 10.1 was in there anyway.  So somebody thought at some stage that they were not covering the same field.  So for those reasons we say that is an ideal vehicle in relation to that issue.  The last point is the ‑ ‑ ‑

GAGELER J:   The estoppel point.

MR BANNON:   The estoppel point.  We have put it as an administration of justice and what we have said in our application we rely on, but I was not going to address it orally.

GAGELER J:   Thank you, Mr Bannon.  Mr Walker, we do not need to hear from you.

Having heard Mr Bannon, we are not persuaded that there are sufficient prospects of success on any appeal to warrant the grant of special leave.  Special leave to appeal is refused with costs.

MR BANNON:   If it please the Court.

AT 9.49 AM THE MATTER WAS CONCLUDED