BHLSPF Pty Ltd v Brashs Pty Ltd
[2001] VSC 512
•21 December 2001
IN THE SUPREME COURT OF VICTORIA Not Restricted AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8198 of 2000
B.H.L.S.P.F. PTY LTD
(as trustee of the Brashs Pty Ltd Staff Provident Fund)Plaintiff v BRASHS PTY LTD (Subject to Deed of Company Arrangement) First Defendant
and BRADLEY GEORGE ROSS Second Defendant and SUZANNE JOY MACKENZIE Third Defendant ---
JUDGE:
Warren J
WHERE HELD:
Melbourne
DATES OF HEARING:
28 and 29 March; 10 May and 20 June 2001
DATE OF JUDGMENT:
21 December 2001
CASE MAY BE CITED AS:
BHLSPF Pty Ltd v Brashs Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:
[2001] VSC 512
Revised 14 February 2002
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Trust – surplus funds – revival of wrongly deleted provisions – application of surplus funds - severance.
Superannuation Funds - dissolution.
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APPEARANCES:
Counsel Solicitors For the Plaintiff Mr D. Maclean and
Mr S.G.R. WilmothBlake Dawson Waldron For the First Defendant Mr S.E.K. Hulme QC with
Mr D.G. RobertsonMallesons Stephen Jaques
For the Second Defendant Mr R. Robson QC with
Mr S. MarksClayton Utz
For the Third Defendant Mr M.K. Moshinsky Piper Alderman HER HONOUR:
1 The plaintiff is the trustee of the Brashs Pty Ltd Staff Provident Fund ("the Fund"), a superannuation fund. The plaintiff issued an originating motion seeking determination of certain issues arising from the Fund. Depending upon the application of a particular rule, the plaintiff will be entitled to exercise certain discretions with respect to distribution under the rules.
The Trust Deed
2 The Fund was established by a trust deed executed on 22 April 1966 ("the 1966 Trust Deed"). The "principal company", Brashs Holdings Ltd, arranged for a group policy to be issued by the Australian Mutual Provident Society ("the Society") "which will provide death retirement and other benefits for the principal company's employees and employees of its subsidiary companies and their respective dependants". The employees of Brashs Pty Ltd and Suttons Pty Ltd were permitted to join the fund. It was contemplated also that employees of other companies that were subsidiaries or invitees of the principal company would be permitted to join.
Rule 15
3 Rule 15 of the 1966 Trust Deed provided as follows:
"15. Subject to the obligations of the trustees under the provisions of the trust deed and rules regarding benefits and benefit moneys the trustees in their absolute discretion may apply any unallocated part or parts of the fund:
(1)In augmenting the benefits to which any members or class of members are entitled.
(2)In providing assistance to any member or ex member in case of need sickness or hardship.
(3)In providing assistance to the dependants of any member or ex-member.
(4)In or towards payment of contributions under the fund.
(5)In paying any expenses in connection with the establishment or administration of the Funds.
(6)As a refund to the Company of any contributions paid by it.
If the trustees set aside an amount in terms of this rule to augment the benefits of any member they will notify the member of the amount so set aside and will hold such amount in trust until his retirement or death to pay it in the manner and to the persons as specified in the rules. If the member ceases to be in the employment of the Company prior to the age for retirement the amount so set out aside will be retained by the trustees for the general purposes of the Funds."
Rule 18
4 Rule 18 of the 1966 Trust Deed provided as follows:
"18(a)The fund shall be indefinitely continuing but should the fund or portion thereof be dissolved from any cause whatsoever then subject to the provisions of the trust deed and the rules the trustees shall forthwith;
(i)Either obtain an endowment assurance policy from the Society on the life or each member on the basis of and as provided in such event by the Group Policy and transfer such endowment assurance policy to the member on whose life it is effected or terminate the benefit on the life of each member and pay to that member that proportion of the amount received from the Society in terms of the Group Policy as is attributable to his interest under the fund.
(ii)Pay to every past member who shall have remained in the service of the Company after the age for retirement all moneys held by them in respect of him and interest accrued thereon.
(iii)Subject to providing for any discretionary benefits as referred to in rule 15 and to the payment of any costs charges and expenses incurred by the trustees as aforesaid divide and distribute the residue of the moneys remaining in their hands amongst the members remaining at the date on which the fund is dissolved in such shares and proportions as the trustees shall consider just and equitable.
(b)Every act done and every payment made by the trustees pursuant to this rule or purporting to be so done or made shall be absolutely conclusive and binding upon all parties interested and no liability whatsoever in respect of any such act or payment shall be incurred by the trustees."
Rule 9
5 Rule 9 of the 1966 Trust Deed permitted the trustees to modify, rescind, alter or add to the 1966 Trust Deed or rules:
"... provided that no such modification rescission alteration or addition shall operate so as to detract from the benefits secured to a member by the contributions paid by him and by the Company in respect of him prior to the date of such modification rescission alteration or addition ... "
6 The 1966 Trust Deed was amended by various deeds dated 10 August 1967, 21 June 1968, 21 May 1970, and 25 March 1971. It was common ground amongst the parties that none of those amendments were relevant for present purposes.
7 Pursuant to Rule 9, the 1966 Trust Deed was replaced in its entirety by a trust deed dated 23 December 1974 ("the 1974 Trust Deed"). The 1974 Trust Deed contained no provisions analogous to Rules 18 or 15 in the 1966 Trust Deed.
Clause 20
8 Clause 20 of the 1974 Trust Deed provides as follows:
"20. (1) If all of the Employers terminate their contributions to the Fund the Trustees shall terminate or alter the Policy and allocate to the Members in such shares and proportions as the Trustees consider equitable (taking into account the length of service as a Member the amount contributed by the member and any other circumstances the Trustees consider relevant) the amounts payable in accordance with the provisions of the Policy and the amounts so allocated shall be applied to provide paid-up policies in the names of the Trustees on the lives of the respective Members or received from the A.M.P and invested by the Trustees and the policy or the proceeds thereof or the amount allocated to the Member and any accretion thereto shall subject to the other provisions of this Deed and any relevant Rules be paid to the Member on his ceasing to be in the service of the Employer (or as otherwise permitted) or to the dependents or legal personal representatives of the Member in the event of his death."
Background History
9 Until 30 June 1997, Brashs Holdings Ltd was the principal employer of the Fund. On 30 June 1997, it was replaced by Brashs Pty Ltd. There was also a corresponding change in the name of the Fund. In May 1998, Brashs Holdings Ltd went into administration.
10 By 23 March 1999 all members had received superannuation entitlements from the Fund. There are now no remaining members of the Fund. The Fund was assessed as having surplus assets and, as at 18 December 2000, the surplus was $3,659,193.00 ("the surplus"). Broadly speaking, the plaintiff seeks to ascertain whether or not the whole or parts of certain provisions in the 1966 Trust Deed are still valid, namely Rules 15 and 18. If those provisions are irrelevant, then the plaintiff seeks to ascertain whether clause 20(1) of the 1974 Trust Deed is valid, and exercisable.
The Issues
11 In its originating motion, the plaintiff seeks determination of the following issues:
1.Is Rule 15 of the Rules of the Fund comprised in the Trust Deed dated 22 April 1966 now valid and in force?
2.Is Rule 18 of the Rules of the Fund comprised in the Trust Deed dated 22 April 1966 now valid and in force?
3.Is clause 20 of the Supplementary Trust Deed dated 23 December 1974 now valid and in force?
4.Are the powers set forth in Rule 15 of the Rules of the Fund comprised in the Trust Deed dated 22 April 1966 exercisable now by the plaintiff?
5.Have the provisions of Rule 18 of the Rules of the Fund comprised in the Trust Deed dated 22 April 1966 now been triggered?
6.Have the provisions of clause 20 of the Supplementary Trust Deed dated 23 December 1974 now been triggered?
12 The plaintiff submitted that if Rules 15 and 18 are found to be inapplicable, then it appears to be inevitable that clause 20(1) of the 1974 Trust Deed is a valid provision. In the event of a finding that clause 20(1) is valid and exercisable, then the plaintiff believes it will be necessary to consider returning to the Court to ask questions directed at two sets of issues. First, the construction of clause 20(1), and whether it authorises a distribution of the surplus. If clause 20(1) does not authorise the distribution of the surplus, whether under principles of the general law the surplus is held on a resulting trust for the members of the Fund and/or the participating employers, or some of either of them. Secondly, if the surplus is not dealt with under clause 20(1), or under a resulting trust, whether the surplus is held for the Crown as bona vacantia. However, if Rules 15 and 18 are found to be applicable, then the second step would not need to be taken and considerable expense to the Fund will be avoided.
The Representative Defendants
13 The first defendant in these proceedings represents itself (as the principal employer of the Fund) and all other employers who participated in the Fund from time to time. The second defendant represents all those interested in the Fund who would support Rules 15 and 18 in the 1966 Trust Deed being the applicable provisions, that is, all former members of the Fund, former members' deceased estates and dependants of former members who would contend that the 1966 Trust Deed was the relevant document. The third defendant represents all former members of the Fund, former members' deceased estates and dependants of former members who would contend that the applicable provision is clause 20(1) of the 1974 Trust Deed.
14 The question asked by the plaintiff is whether it was ultra vires of clause 9 of the 1966 Trust Deed for the Principal Company and the trustees to have omitted Rules 15 and 18 from the 1974 Trust Deed.
Summary of Plaintiff's Position
15 The plaintiff submitted that Rules 15(1) to (5) were provisions that benefited, either directly or indirectly, the members of the Fund. Rule 15(6) stood only to benefit the Company and, it was argued, is capable of being severed from the remaining provisions of Rule 15. In regard to Rule 18, it was submitted that it benefited the members in its entirety.
16 The plaintiff submitted that the first condition to clause 9 which provides that no amendment shall operate so as to detract from the benefits secured to a member should be construed broadly. The plaintiff submitted that amendment of the 1966 Trust Deed by the removal of Rules 15 and 18 prejudiced the future or contingent benefits of the members under the Fund, such that the amending 1974 Trust Deed was ultra vires clause 9.
17 The plaintiff submitted that for the purposes of rule 18, a "dissolution" of the Fund has occurred as the Principal Employer has ceased to carry on business. Additionally, there are no longer any active members or any pensioners of the Fund. Furthermore, no new members have been admitted since at least 1998. The plaintiff therefore contended that the Fund has dissolved for the purposes of rule 18 and that it is open to the Court to find that rule 18 has been "triggered". As to whether rule 15 may now be exercisable, the plaintiff submitted that there would appear to be no real impediments to its exercise.
18 On the question of the validity of clause 20(1) of the 1974 Trust Deed, the court was not asked by the plaintiff to determine its construction as regards any distribution that it may empower the trustees to make. Rather, the plaintiff asks whether, in the alternative to Rules 15 and 18 of the 1966 Trust Deed, clause 20(1) applies and, if so, whether its exercise has been activated. The plaintiff submitted that even on the most broad construction of the provision that favours the members, there appears to be no basis to say that the benefits secured have been repeated or improved to permit clause 20(1) to override Rules 15 and 18 in the event that they are valid and exercisable.
Summary of Position of First Defendant
19 The first defendant, representing the principal employer, submitted that the 1974 amendments to the 1966 Trust Deed were valid and that the 1974 Trust Deed wholly replaced the 1966 Trust Deed. The first defendant submitted that the amendments to the 1966 Trust Deed did not prejudice the benefits secured to members and that to give those words a broad construction, as suggested by the plaintiff, would remove flexibility from the amendment power provided for in clause 9.
20 The first defendant submitted, also, that the changes brought about by the 1974 Trust Deed, as a whole, were generally beneficial to members and that clause 9 should not be construed so broadly as to preclude substantial improvements such as those brought about by the 1974 Trust Deed. Additionally, the first defendant sought to rely upon the opening clause of the 1974 Trust Deed that purported to rescind the whole of the trusts and provisions in the 1966 Trust Deed. It was submitted that if that provision were ultra vires, then it would render the 1974 Trust Deed ultra vires, and the subsequent administration of the Fund as wrongful.
21 On this basis, the first defendant proceeded to submit that the relevant clause for consideration is clause 20. The first defendant submitted that clause 20 provides no assistance as it is not concerned with the distribution of a surplus in the circumstances currently before the court. The first defendant submitted, therefore, that as the 1974 Trust Deed provides no guidance in relation to the distribution of a surplus then there must exist a resulting trust. If there is no resulting trust, then, it was submitted, the surplus passes to the Crown as bona vacantia.
22 The first defendant submitted that if a resulting trust was to be found, then it was for the employer alone. Contributions were made by the employer only to the extent that contributions by the members were inadequate to satisfy the defined benefits. It would then follow that if any contribution was required from the employer and a surplus arose, then the whole of that surplus was derived from the employer's contribution.
Summary of Position of Second Defendant
23 The position of the second defendant, representing former members of the Fund supporting Rules 15 and 18, was that Rules 15 and 18 of the 1966 Trust Deed are still in force. The second defendant relied upon arguments similar to those of the plaintiff in relation to Rules 15 and 18.
24 The second defendant submitted that the meaning of the term "benefit" must be construed within the context in which it appears in the 1966 Trust Deed. The second defendant submitted that the term "benefits secured" refers to a broad category of benefits or rights which could not be altered. The benefits so secured, it was argued, extended to all benefits conferred by the Deed, including present or future, contingent or expectant. The second defendant submitted also that rule 15(6) was capable of being severed as it did not stand to benefit members, only the Company.
25 The second defendant submitted that in relation to rule 18 the benefits contemplated therein are future benefits or contingent benefits within the meaning of that phrase. Whether or not the provision has been stimulated is dependent upon whether the Fund has been "dissolved". The second defendant sought assistance from clause 10 of the 1966 Trust Deed which provided that where the employment of all of the members of the Fund has been terminated, the Fund shall, from the date of the termination, be dissolved and all moneys and assets held by the trustees be distributed in accordance with the provisions of the Deed and the Rules, including rule 18.
26 The second defendant submitted that clause 20 of the 1974 Trust Deed is silent on the issue of the application of a surplus. In any event, it is the argument of the second defendant that if Rules 15 and 18 are preserved, then in relation to a distribution of the surplus those rules will apply.
Summary of Position of Third Defendant
27 The third defendant representing former members of the Fund supporting clause 20(1), submitted that Rules 15 and 18 of the 1966 Trust Deed are no longer in force and that clause 20 of the 1974 Trust Deed is valid and in force and has now been triggered.
28 The third defendant relies on similar arguments to that of the first defendant in support of the deletion of Rule 15 from the 1966 Trust Deed. It was submitted that the benefits referred to in clause 9 do not refer to all benefits conferred on members by the 1966 Trust Deed but is limited to benefits payable upon retirement, death, total and permanent disablement or otherwise ceasing to be employed by the Company. It was further submitted that contingent and discretionary benefits referred to in Rule 15 are excluded. A distinction was drawn by the third defendant between the designated benefits, that is, those payable upon retirement or death, and the supplementary benefits provided for in Rule 15 which are both contingent upon there being unallocated funds and discretionary, being subject to the exercise of a discretion reposed in the trustees. As such, the benefits under Rule 15, the argument follows, are potential benefits not aptly described as benefits secured to a member by contributions.
29 In regard to Rule 18, the third defendant relied upon the same arguments as those submitted in support of Rule 15. In the case of clause 20 of the 1974 Trust Deed, the third defendant submitted that no basis had been suggested to impugn the validity of clause 20, such that it is valid and in force. The third defendant submitted that clause 20 has been triggered as all employers had ceased making contributions to the Fund.
Construction and Application of Rules 15 and 18
30 On initial reflection it might appear that the 1974 amendments are valid as they do not prejudice "the benefits secured" to members. Mr S.E.K. Hulme QC who appeared with Mr D. Robertson for the first defendant, that is the employer's interest, urged that the proviso to the amendment power contained in rule 9 protects "the benefits secured" to a member "by the contributions" made prior to the amendment. It was submitted that this fact suggested that the repair of Rules 15 and 18 is not prevented by the proviso to the power.
31 It was urged on behalf of the first defendant that the application of a wide meaning to the words "the benefits secured to a member" would remove flexibility from the amendment power. A general scheme to improve benefits overall, it was said, such as that contemplated by the 1974 Trust Deed could not be instituted if "benefits secured" were construed so widely that unless the scheme were such that in no eventuality could any individual member be disadvantaged by any aspect of the operation of the new deed, the amendment would fail. It was argued that such a construction would be absurd and should not be adopted unless compelled by the words used.
32 The first defendant relied upon the assertion that the 1974 Trust Deed produced a fundamental alteration of the Fund with higher member contributions in most categories and very much improved benefits, also, in most categories. It was said that as a whole, the changes were most beneficial to members. It was submitted that clause 9 of the 1966 Trust Deed should not be given a construction which would preclude, for all persons and for all time, substantial improvements such as those produced by the 1974 Trust Deed. Hence, it was argued that a wide construction of the words "the benefits secured" in clause 9 of the 1966 Trust Deed is unnecessary.
33 For the employer defendant it was submitted that the opening operative clause of the 1974 Trust Deed contained a single provision which rescinded the whole of the trusts and provisions set out in the 1966 Trust Deed, and added to them to make them identical to the trusts and provisions set out in the 1974 Trust Deed. If that single provision set out to do something forbidden, it fails, and the terms of the 1974 Trust Deed were never adopted. That would mean that there had been wrongful administration throughout the whole period 1974 to 1998.
34 It is apparent that if Rule 18, given that it incorporates Rule 15, was to be reinstated then this would have no impact on the life of the fund from 1974 onwards. It follows that Rule 18 is a power that only affects actions by the trustee with respect to the application of the surplus. Furthermore, a provision in a power of amendment that the deed may be amended with member consent so as to derogate from secured benefits is in fact superfluous. The current Fund's 1966 Trust Deed was capable of amendment, with the consent of the members, to delete Rules 15 and 18. The deed itself was not required to say that which would otherwise be a breach of trust if the members' consent.
35 For construction purposes Rule 15 in the 1966 Trust Deed needs to be compared with the proviso to clause 9. The proviso contained in clause 9 of the 1966 Trust Deed protected the members and persons upon whom benefits had been conferred under that deed from and against any amendment or alteration to the 1966 Trust Deed or rules if the effect of such amendment or alteration was to detract or derogate from such conferred benefit. Rule 15 is a provision which was of benefit to the members of the Fund. It is of direct or indirect benefit to members under sub‑rules 15(1), (2) and (3) and, in all likelihood, of indirect benefit to members under sub‑rules 15(4) and (5). Rule 18 in the 1966 Trust Deed is a provision which is of benefit to the members of the Fund. The issue that arises in relation to Rules 15 and 18 is whether it was ultra vires clause 9 for the Principal Company and the trustees to delete those rules from the trusts of the Fund, by not including them as part of the 1974 Trust Deed. It follows that the ultra vires point arises from the terms of the proviso to clause 9. There is a line of authority to the effect that provisions such as the first proviso to clause 9 are to be construed broadly so as to protect the interests of the members of the fund concerned. It seems to be accepted as a proposition that where a power of amendment is expressed so as not to prejudice benefits to members already secured or provided for, those benefits (which may not be prejudiced) include future or contingent benefits such as those which may arise under provisions such as Rule 18, or Rule 15.
36 In James Miller Holdings Ltd v J.D. Graham & Ors (1978) ACLC 40-460 a superannuation fund consisted primarily of the interest of the trustee in a policy of insurance with National Mutual Life Association of Australasia Limited. Clause 24 of the relevant proposal permitted the trustees to amend the proposal (with the consent of the Association) "provided that no such amendment deletion or addition shall detrimentally, affect or derogate from the benefits already secured in respect of a Member" at the date of the amendment. McGarvie J at p.30,195 drew a distinction between benefits already secured and benefits which the trustee was entitled to receive: "a benefit already secured is a benefit which under the terms of the contract of insurance J.M.H. is contingently entitled to receive upon the happening of an event which give it a present vested right to receive it."
37 In Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 730 the power in clause 12 of the superannuation trust deed in question permitted amendments by deed "executed by the Company and the Trustees in any respect which would in the opinion of the Company not prejudice any benefits secured by contributions made on behalf of any members or to the date of such alteration or amendment". There is a substantial similarity between the words quoted and the first proviso to the Fund in issue in this proceeding. The Court found at p.736 that "benefits secured should be construed broadly as referring to the "widest class of benefits", including such things as the possibility of benefiting from the exercise of a discretion to augment benefits, and the possibility of sharing in a surplus on the termination of the fund, under clauses 4(b) and 9(c).
38 In Gas Fuel Corporation v Fitzmaurice (1991) 22 ATR 10 the proviso to the amendment power was that amendments could not have the effect of reducing "any Benefit then provided" by the deed in the absence of member consent. Hedigan J concluded (at p.25) that "Benefit, included both benefits that had already accrued and benefits that might accrue in the future."
39 In the Asea Brown Boveri Superannuation Fund No. 1 P/L v Asea Brown Boveri P/L & Ors [1999] 1 VR 144 the proviso to the amendment power was that "benefits of Members already secured at the date of such amendment deletion or addition shall not be detrimentally affected with out their consent in writing". The amendments in issue were ones which, first, purported to remove an existing formula in the deed for a generous retrenchment benefit and, second, to remove an express provision in the deed for the employer to match employee contributions. Beach J held that each of those provisions constituted benefits already secured, and that they could not be removed without the consent of the members. The learned judge said at p.158 that secured benefits included "provisions for future benefits or contingent benefits or benefits expectant upon further eventualities." Beach J followed Wilson v Metro Goldwyn Mayer and the James Miller case.
40 An Australian authority that might be viewed to be inconsistent with the previous authorities is Lock v Westpac Banking Corporation, (1991) 25 NSWLR 593. The terms of the power of amendment in that case were somewhat different from rule 9 in the 1966 Trust Deed. Hence, Lock is distinguishable. Furthermore, the reasoning in Lock v Westpac relied partly on the Canadian decision of Hockin v Bank of British Columbia (1990) 71 DLR (4th) 11. That authority no longer seems to be followed as good law in Canada: see Schmidt v Air Products of Canada Ltd (1994) 115 DLR (4th) 631; Hockin v Bank of British Columbia (1995) 123 DLR (4th) 538; Re Sykes (1998) 156 DLR (4th) 124. There are also some New Zealand decisions that may seem to be inconsistent with the Australian authorities cited. See: Ritchie v Blakely [1985] 1 NZLR 630; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 29 at 304.
41 In finding that the removal of Rules 15 and 18 was ultra vires clause 9 of the 1966 Trust Deed an issue arises as to whether Rules 15 and 18 would apply to all members of the Fund, or only to those joined before 23 December 1974. The plaintiff did not ask a question about this matter but raised it, quite properly, if only to eliminate it as an issue because of what has been said in two recent cases.
42 In Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 the Privy Council said at p.1411:
"Their Lordships are satisfied that the 1994 amendments are incurably bad. There are several reasons for this. In the first place, as their Lordships have already explained, any power to amend the trusts is void for perpetuity. This does not mean that an amendment is wholly without effect. An employee who joins the plan after an amendment makes his settlement upon the trusts of the plan as amended. But an amendment cannot affect existing members. The 1994 amendments which were made after the plan had been closed to new members, were therefore without effect."
43 Adopting the same approach it follows that any members who joined the Fund after 23 December 1974 are bound by the 1974 Trust Deed, and not by the 1966 Trust Deed at all, including Rules 15 and 18. Air Jamaica has been considered further on this point in Harwood‑Smart v Caws [2000] PLR 101 where Rimer J said (a p.113):
"whatever might be the scope in other factual circumstances for the application of the principle to which Lord Millett refers, there is no practical scope for its provisions of the type which are in question in this case, being provisions which are, at least purportedly intended to apply generally to all scheme members whenever they joined. In my judgment, as regards the problem, arising in this particular case, the invalid element of clause 21(b) THIRD introduced in 1983 is invalid not only as regards the pre‑1983 members, but also as regards new members joining subsequently."
44 Applying the reasoning of Rimer J to rule 18 and rule 15, the conclusion must be that their removal was invalid as against all members of the Fund, since each rule was a rule of general application that would have been intended to apply to all Fund members, whenever they joined. The statement by the Privy Council in Air Jamaica was obiter dictum only. If an amendment to introduce a new provision is ultra vires, then, under general principles of trust law, the trustee has no authority to act upon the new provision, since it would be an act in breach of trust. It would be possible in some cases for there to arise an estoppel that might bind trustees personally or employees as against one or more members. Such scenario was considered in Briffa v Hay (1997) 75 FCR 428 at pp 443D - 445B.
45 Mr R. Robson QC who appeared with Mr S. Marks for the second defendants submitted that the revival of Rule 15 hinged upon the operation of clause 9 but that the benefits protected by clause 9 are the "benefits secured to a member". It was submitted that the benefit conferred by the operation of Rule 15(6) is not secured to a member. Rather, on the contrary, Rule 15(6) benefits the company only. Indeed, the argument for the second defendant went so far as to submit that Rule 15(6) may be regarded as a sub‑rule adverse to the interests of members because it deprives them and ex members from access to potential benefits. Hence, it was urged that if Rule 15(6) was an independent provision of the trust deed it was capable of valid deletion by the principal company and the trustee without restriction. It was submitted that the deletion of Rule 15 from the 1974 trust deed was invalid only in relation to the deletion of Rule 15(1) to (5). It was argued that the deletion of sub-rule 15(6) was not invalid. On the basis of the approach in the Asea Brown case and, also, UEB Industries, sub-rule 15(6) was readily severable from the balance of Rule 15. As a result, Rule 15(6) was not revised by the operation of clause 9 of the deed and consequently is of no force and effect. So far as severance is concerned, the rule stated in Farwell A Concise Treatise on Powers (2nd ed) at p.298 is:
"Where there is a complete execution of a power and something added which is improper the execution is good and the excess void; but where there is not a complete execution, or where the boundaries between the excess and the execution are not distinguishable, the whole appointment fails."
46 Mr D. McLean who appeared with Mr S. Wilmoth for the plaintiff submitted that applying that test to the present case, it may be open to the Court to sever the good from the bad, and allow the rescission of rule 15(6), but not the rescission of the balance of rule 15. In my view in those circumstances the result would be to reinstate so much of rule 15 that there was no power to remove. The Asea Brown Boveri case, supra (at 149) is an example of a deed of amendment being found to be valid as to part, and invalid as to part only. Re UEB Industries Ltd Pension Plan, supra, (at 367-9) is another. Furthermore, it is an example of severance being applied in the case of amendments effected by replacement deeds.
47 By contrast, Mr M. Moshinsky who appeared for the third defendant representing the estates and dependents of deceased members submitted that the expression "the benefits secured to a member by the contributions paid by him and by the Company in respect of him prior to the date of such modification, rescission, alteration or addition" in the proviso to clause 9 did not refer to all benefits conferred on members by the 1966 Trust Deed. Rather, it was urged that the proviso had a more precise meaning such that the benefits are payable to a member on retirement, death, total and permanent disablement or otherwise said to be in the service of the company. It was submitted that the expression did not include the contingent and discretionary benefits referred to in Rule 15.
48 However, similar analysis and argument was considered and rejected in the MGM case (at 734, 736), the Gas & Fuel case (at 17, 25) and in the Asea case (at 158).
49 Mr Moshinsky sought to distinguish the MGM case on two grounds. First, that the benefits in that case that the amendment purported to interfere with were not truly discretionary but were an entitlement of members in the event of winding up. Secondly, the amendment provision in MGM, had a different meaning to clause 9 in the present case. Thus it was urged that the deletion of Rule 15 of the 1966 Trust Deed by the 1974 Trust Deed was not precluded by the proviso to clause 9 and was effective in every respect, including rule 15(6).
50 Rules 15(1), (2), (3), (4) and (5) are or may be of benefit to members either directly or indirectly, and are capable of being regarded as "benefits secured" within the meaning of the proviso to clause 9. It seems to me that Rules 15(1), (2) and (3) would be difficult to regard as outside the proviso. Rules 15(4) and (5) can be so regarded on a broad view of the proviso and on application of the principles in Asea Brown Boveri (at p.158). Rule 15(4) can be considered to be of benefit to the members, upon the basis that contributions from the assets of the Fund may be needed to keep the Fund operating. Much the same can be said of rule 15(5). Rule 15(6) is, however, only of benefit to "the Company". On the application of the Australian authorities it appears that there was power to remove rule 15(6) in which case a severance ought be allowed, so that upon Rules 15 (1) to (5) being restored, rule 15(6) will not. In that case I answer Question 1 "Yes, save for Rule 15(6)", and Question 4 "Yes, save for rule 15(6)".
51 Questions 1 and 2 in the Originating Motion ask whether Rules 15 and 18 are valid and in force. Question 4 asks whether the powers in rule 15 are exercisable now; question 5 asks whether the provisions in rule 18 have been triggered.
52 Given that rule 18 is still in force, then consideration as to whether rule 18 is exercisable arises. The language used in rule 18 is "should the fund or portion thereof be dissolved from any cause whatsoever". This is left undefined in the 1966 Trust Deed. The same language is used in clause 5(a) of the 1966 Trust Deed where dissolution from any cause is a ground for the liability of the Company to contribute to cease, and in clause 10(a) where, if any company ceases to carry on business and the employment of a member is thereby terminated, the portion of the Fund that relates to that member is said to be dissolved. The Principal Employer (Brashs Pty Ltd) is still in legal existence, but has ceased to carry on business. There are no longer any active members, and there are no pensioners of the Fund. The last contribution of any kind made by any employer was by the Principal Employer in September 1998. The last member of the Fund was Mr J.F. Pegg, who ceased his employment with Brashs Pty Ltd on 30 September 1998, and was paid his entitlements under the Fund on 29 October 1998. The last payments to members of the Fund were to two individual members on 23 March and 9 February 1999, respectively. The two members had ceased employment with Brashs Pty Ltd on 17 February and 31 May 1995, again respectively.
53 Upon the basis that a "dissolution" of the Fund denotes the Fund coming to an end, then there appears to be a basis for a finding that the Fund has dissolved for the purposes of rule 18. Similar questions arose in Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 as to whether there had been a discontinuance of a fund. The Privy Council observed at pp 1410‑1411 was as follows:
"A pension scheme is a continuing scheme under which new members are continually joining and existing members leaving or taking their benefits. In order to wind up such a scheme three steps must be taken, though the first two may be taken simultaneously. First, the scheme continues as a closed scheme contributions continuing to be paid in respect of existing members but no new members being admitted. Secondly, contributions must cease to be paid in respect of existing members, who will either have been made redundant or have been transferred to a new scheme. At this stage the Scheme is discontinued, since it ceased to be a continuing one. But pensions in payment continue to be payable until the third stage is reached and the scheme is finally wound up."
54 In the case of the Fund here three observations are warranted. First, no new members have been admitted at least since 1998. Secondly, all existing members have left the Fund, and been paid their entitlements. Thirdly, the Fund has no pensioner receiving payments from the Fund.
55 Applying the reasoning in the Air Jamaica case by analogy to rule 18, that rule has been 'triggered'.
56 The next matter is as to whether rule 15 is exercisable. The first qualifying condition for rule 15 itself is that the operation of the rule is "Subject to the obligations of the trustees under the provisions of the trust deed and rules regarding benefits". Since all members have been paid their benefit entitlements there appears to be no reason to regard this condition as giving rise to any difficulty. Rule 15 only operates upon "any unallocated part or parts of the Fund". There appears to be no reason not to regard a surplus in existence after the payment of all benefits as " unallocated" under the terms of the 1966 Trust Deed. Rule 18(a)(iii) states that "Subject to providing for any discretionary benefits as referred to in rule 15 …." The point of this appears to be that when the Fund is dissolved, the trustees are able to exercise their powers under rule 15 in the course of that process. There may be a contrary argument that rule 18(a)(iii) only contemplates payment under decisions made under rule 15 prior to the dissolution of the Fund.
57 I find that Rules 15 and 18 are exercisable now. The plaintiff has ample power to dispose of the surplus.
58 So far as the construction of clause 20(1) is concerned, the clause may have the effect that the trustee is obliged to divide the surplus among the members of the Fund from time to time "in such shares and proportions as the Trustees consider equitable". Another construction of clause 20(1) might be that it means that the trustee is obliged to divide the surplus among the members of the Fund remaining when "all of the Employers terminate their contributions." The definition of "Member" in rule 1 of the 1974 Trust Deed (as amended) is "an Employee who has become a Member of the Fund or (as the context requires) a person who has become entitled to receive a benefit under the Fund or for whom an amount is preserved within Fund." Another construction might be that clause 20(1) is only designed to deal with the payment of members' usual benefits when the Fund comes to an end. If there is a shortfall, then the members will miss out. If there is a surplus (after payment of benefits) then clause 20(1) is silent. The plaintiff has not asked the Court any questions concerning the construction of clause 20(1) in these respects. At this stage, the plaintiff wishes only to know whether Rules 15 and 18 apply (and if so to what extent), and are able to be exercised now; or whether clause 20(1) applies, and if so, has its exercise been triggered. In the context of the present application, the various benefits secured to a member by Rules 15 and 18 (see clause 9 of the 1966 Trust Deed) have not been carried over into the 1974 Trust Deed and, in particular, have not been carried over into clause 20(1). Even if it is assumed that clause 20(1) has the broadest construction in favour of the members there would appear to be no basis to find that the benefits secured have been repeated or improved, such that clause 20(1) will in any event supersede Rules 15 and 18.
59 As to the validity of clause 20 and whether there has been a "triggering" of clause 20(l), first, all of the Employers have as a matter of fact terminated their contributions to the Fund, so prima facie clause 20(1) is brought into operation. Secondly, if clause 20(1) only means that when all the employers cease making contributions, existing Members' entitlements must be catered for, then it may be that the fact that all members have been paid their entitlements means that clause 20(1) no longer has any work to do. Thirdly, if clause 20(1) means that an equitable distribution of the remaining assets in the Fund has to be made among all the members of the Fund at the point of termination or from time to time, then clause 20(1) may still have work to do. Fourthly, as Rules 15 and 18 have survived the 1974 Trust Deed, prima facie they must override clause 20(1) to the extent of any inconsistency.
60 Further submissions were made by the first, second and third defendants that focused upon the issue of whether Brashs Pty Ltd had "ceased carrying on a business". I consider that it is not necessary for the court to address specifically this issue in the determination of the questions posed by the plaintiff in the originating motion.
61 It follows that the questions asked by the plaintiffs should be answered as follows:
1.Is Rule 15 of the Rules of the Fund comprised in the Trust Deed dated 22 April 1966 now valid and in force? Yes, save for Rule 15(6).
2.Is Rule 18 of the Rules of the Fund comprised in the Trust Deed dated 22 April 1966 now valid and in force? Yes.
3.Is clause 20 of the Supplementary Trust Deed dated 23 December 1974 now valid and in force? No.
4.Are the powers set forth in Rule 15 of the Rules of the Fund comprised in the Trust Deed dated 22 April 1966 exercisable now by the plaintiff? Yes, save for Rule 15(6).
5.Have the provisions of Rule 18 of the Rules of the Fund comprised in the Trust Deed dated 22 April 1966 now been triggered? Yes.
6.Have the provisions of clause 20 of the Supplementary Trust Deed dated 23 December 1974 now been triggered? No.
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CERTIFICATE
I certify that this and the 21 preceding pages are a true copy of the reasons for Judgment of Warren J of the Supreme Court of Victoria delivered on 21 December 2001.
DATED this twenty first day of December 2001.
Associate
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