DUDFIELD and THORNTON

[2020] FCWA 122

JURISDICTION : FAMILY COURT OF WESTERN AUSTRALIA

ACT: FAMILY LAW ACT 1975

LOCATION: PERTH

CITATION: DUDFIELD and THORNTON [2020] FCWA 122

CORAM: O'BRIEN J

HEARD: 15 JULY 2020

DELIVERED : Ex tempore

FILE NO/S: PTW 1646 of 2017

BETWEEN: MS DUDFIELD

Applicant

AND

MR THORNTON

Respondent

Catchwords:

Property - Where parties seek superannuation splitting orders in relation to defined benefit interests - Where there is inadequate evidence to permit the required determination of the present value of those interests - Where it appears that the value agreed by the parties has been calculated without regard to the Family Law (Superannuation) Regulations 2001 (Cth) - Where there is no evidence as to whether the benefits may only be taken in a lump sum, or potentially in whole or in part as a pension - Where different valuation methods apply depending on that question - Where the Rules of the relevant fund are not in evidence despite that requirement being brought to the attention of the parties prior to trial - Where the proposed consent orders cannot be made - Turns on its own facts.

Legislation:

Family Law (Superannuation) Regulations 2001 (Cth)
Family Law Act 1975 (Cth)

Category: Reportable

Representation:

Counsel:

Applicant	:	Lawyer A
Respondent	:	Lawyer B

Solicitors:

Applicant	:	Law Firm A
Respondent	:	Law Firm B

Case(s) referred to in decision(s):

Bulow & Bulow (2019) 59 Fam LR 136

Harris v Calladine (1991) 172 CLR 84

WORDS IN SQUARE BRACKETS REPLACE WORDS USED IN THE ORIGINAL JUDGMENT – PARTIES’ NAMES AND IDENTIFYING DETAILS HAVE BEEN CHANGED

IT IS NOTED that publication of this judgment by this Court under the pseudonym Dudfield and Thornton has been approved by the Family Court of Western Australia pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

1The proceedings between [Ms Dudfield] (“the wife”) and [Mr Thornton] (“the husband”) which commenced in March 2017 were listed for trial to commence this morning. When the proceedings commenced, matters relating to the arrangements for their children were in dispute; to the credit of the parties, those matters were resolved by the making of consent orders in January 2020. The matters remaining for determination at trial were the competing proposals of the parties for the alteration of their property interests.

2The parties have had lengthy discussions this morning, and into this afternoon, and have tendered a Minute of proposed consent orders. Included in the orders sought are orders for the splitting of the husband’s superannuation interests. Those interests are in an [Superannuation Company A] fund designated as the [Company A] superannuation plan. The husband’s entitlements are split into two sub-plans – one is a simple accumulation fund, and the other is a defined benefit fund. The parties seek that the proposed superannuation splitting orders apply to both funds.

3For the reasons that follow, I am unable to make the orders sought.

The available evidence

4Notwithstanding that both parties are represented, issues which clearly arise in relation to splitting orders directed to a defined benefit superannuation interest were apparently not addressed prior to the status hearing listed of the court’s own motion on 25 June 2020.

5I was told by counsel then appearing for the wife that, notwithstanding that at that time no detailed proposed orders for superannuation splitting had been included in the wife’s materials filed at court, a form of orders had been proposed and the appropriate notice given to the Trustee.

6On 2 July 2020, the wife’s solicitor filed an affidavit annexing a copy of her letter dated 15 May 2020 to the Trustee of the Superannuation Company A fund, enclosing proposed superannuation splitting orders, and the reply received, which was dated 21 May 2020. That reply advised that it appeared that the Trustee would not have any “administrative difficulty in complying” with the proposed orders. The reply went on to say that the husband “currently has a hybrid account made up of a defined benefit and an accumulation account” and that the fund “does not currently allow defined benefit accounts to be split immediately”, meaning that any split directed towards the defined benefit account would “need to be a deferred split, meaning that the benefit may only be divided when the defined benefit became payable (e.g. on retirement, turning 65 et cetera).”

7When I enquired at the status hearing as to what steps had been taken to ensure that the husband’s defined benefit interest in particular had been valued in accordance with the Regulations, and that evidence to that effect would be available at trial, I was told in essence that was a work in progress.

8On 30 June 2020 the wife filed an updating affidavit for the purposes of trial. Annexed to that affidavit was a copy of a letter to her solicitors from Superannuation Company A, dated 31 January 2020, providing the required information as at 16 January 2020 in relation to a modest separate accumulation fund in which the husband has an interest, valued at that time at $15,682. Also annexed to that affidavit was a letter responding to a request for information as to the husband’s entitlements. Unfortunately, the Form 6 request for that information was not exhibited to the affidavit. The information provided by the Trustee did not conform with the format set out for a response in the Form 6. That itself is unfortunate, as while the Regulations do not oblige a Trustee to provide a value of a defined benefit interest in the growth phase, nor to provide the information on which the valuation is based, adherence to the Form would at least have made clear whether or not the figures provided were purportedly calculated in accordance with any approved scheme specific method, or the method prescribed in Schedule 2 of the Regulations.

9The information provided at that time was that:

(a)the husband’s interest is a defined benefit interest in the growth phase;

(b)the husband’s eligible service period commencement date was 14 January 1991;

(c)his date of commencement within the plan was 30 September 2010;

(d)his normal retirement age is 60;

(e)the accrued benefit multiple “is 29.000 and 25.000” - there being no explanation as to just what that meant or why two multiples were quoted;

(f)the salary on which the relevant figure is based is $238,700;

(g)the surcharge debt is $20,485; and

(h)the withdrawal value of the husband’s interest as at January 2020 was $1,366,222.43, comprised of a defined benefit amount of $1,304,371.80 and an accumulation amount of $82,366.41.

10Subsequently, the parties tendered by agreement this afternoon an updated letter from the Trustee dated 13 July 2020. That letter advised that the relevant accrued benefit multiple at 15 January 2016 (that is, at about the date of separation of the parties) was 4.63. No multiple was provided as at the present date. Counsel for the husband advised that in his discussion with the relevant officer, it was acknowledged that the accrued benefit multiples included in the earlier advice were, as is obvious, clearly wrong.

11The updated letter goes on to say that the withdrawal value of the husband’s entitlements as at 30 June 2020 totals $1,383,294.80 - comprised of $81,297.39 as the accumulation amount, and $1,301,997.41 as the defined benefit amount. The latter of those two amounts is the figure which the parties proposed I should determine as the relevant value of the husband’s defined benefit entitlements.

12The advice from the Trustee goes on to say that “the withdrawal values shown are the estimated values that would have been paid from the fund to a member if they ceased membership of the fund on the dates shown.”

13While it is not expressly stated, it is apparent from that notation that the value of the defined benefit component of the husband’s entitlements provided by the fund is not calculated in accordance with the Family Law (Superannuation) Regulations 2001 (Cth) (“SIS Regulations”).

14Indeed, there is nothing to explain just how that value was calculated, bearing in mind the accrued benefit multiples noted and the advice as to the salary upon which the calculation is based – self‑evidently, the value was not simply calculated by multiplying the accrued benefit multiple provided in the advice, which was itself out of date, by the relevant salary.

15The information provided is silent on the question of whether the release of monies to the husband from the defined benefit plan is, pursuant to the rules of the fund, to be by lump sum only or whether there is an option to take all or part of his entitlements in the form of a pension. While the parties appear to have proceeded on the basis that the husband’s entitlements will be available to him in a lump sum only, and they may well be right in that assumption, there is no evidence to that effect. Unfortunately, it does not appear that potential issue had been considered before I raised it with counsel this morning.

16The further document tendered this afternoon, a generic plan schedule setting out the defined benefit categories and other matters relating to them, does not greatly assist. That is so as it establishes that there are two separate types of defined benefits arrangements within the fund – a non-contributory membership, and a contributory membership. There is no evidence as to into which of those two categories the husband falls, although it appears from the document, which refers to additional accumulation accounts only in the context of contributory membership for obvious reasons, that he may fall into that category. In making that observation, I acknowledge the submissions made by counsel for the husband to the contrary by reference to various materials and calculations contained in the generic document. Again, counsel may very well be right in the inferences which he has drawn, but there is no evidence available to me at present to support that.

17The generic information provided also suggests that members in the contributory category have the option to take all or part of their entitlements in the form of a pension, but there is no information as to the relevant terms.

18Similarly, there is no evidence as to the rules of the relevant superannuation fund.

The issues which arise

19Problems arise as a result of the matters just outlined.

20Fundamentally, the first task of the court in determining competing claims for the alteration of property interests is to identify the existing legal and equitable interests of the parties in property, and the values of those interests.

21Superannuation is to be treated as property for that purpose. The requirement to identify and value the interests of the parties in superannuation is again fundamental, whether or not orders for superannuation splitting are sought.

22When a superannuation splitting order is sought, that fundamental position is reinforced and mandated by the Family Law Act 1975 (Cth) (“the Act”).

23Section 90XT(1) sets out the orders which a court may make to split superannuation interests. Section 90XT(2) is in the following terms:

“before making an order referred to in subsection (1), the court must make a determination under paragraph (a) or (b) as follows:

(a)if the regulations provide for the determination of an amount in relation to the interest, the court must determine the amount in accordance with the regulations;

(b)otherwise, the court must determine the value of the interest by such method as the court considers appropriate.”

24Regulation 29 provides that the gross value of a defined benefit interest is to be determined by the application of the method set out in Schedule 2 to the Regulations, unless the relevant Minister has approved a scheme specific valuation method for the particular fund pursuant to Regulation 38.

25There is no evidence before me as to whether there is an approved specific valuation method for the relevant scheme in this case. While I accept the assurance of counsel for the husband that his understanding is that there is no such approved method for the relevant scheme, he properly acknowledged that was a conclusion he had drawn rather than a matter in respect of which he could point me to evidence.

26Regulation 29(3)(b) provides that if there is no method approved under Regulation 38 and evidence is before the court of the contents of a statement issued by the Trustee “being a statement that states the value of the interest determined in accordance with the method set out in Schedule 2” then the gross value of the interest at the relevant date is the value of the interest stated in that statement.

27The statement from the superannuation fund in evidence does not indicate that the value shown has been determined in accordance with the method set out in Schedule 2 of the Regulations. Indeed, the notation earlier referred to indicates that it is likely that it was not so determined. The value cannot therefore be determined by operation of Regulation 29(3)(b).

28Regulation 29(3) provides that in the absence of such a complying statement or a fund specific approved valuation method, the gross value at the relevant date of the interest is to be determined using the method set out in Schedule 2 to the Regulations.

29Schedule 2 in turn sets out different methods of valuation depending on whether the benefit in respect of the superannuation interest is payable only as a lump sum, only as a pension, or as a combination of the two.

30As already noted, there is no evidence before me as to whether the husband’s benefit is payable only as a lump sum, or potentially at his election as a pension or combination of a lump sum and a pension.

31If the husband’s interest is payable only as a lump sum as the parties have assumed, before any superannuation splitting order can be made the value required by s 90XT(2) to be determined is to be calculated by application of the formula set out at Part 2 of Schedule 2 to the Regulations.

32The first step in that formula requires the calculation of the product of the member’s accrued benefit multiple for a lump sum, and the salary figure on which benefits in respect of the interest would be based at that date, assuming he was then eligible to retire.

33As already noted, I have not been provided with the current accrued benefit multiple.

34Even were that not an issue, a further issue emerges. The second step of the application of the method prescribed in Part 2 of Schedule 2 is the multiplication of that gross figure by a lump sum valuation factor calculated in accordance with subclause 3(2). That subclause in turn requires reference to a lump sum valuation figure set out in clause 4 of the Schedule that applies from the relevant date to the term remaining in complete years until the husband reaches his retirement age, with adjustments for parts of years.

35The information provided by the Trustee is that the husband’s “normal retirement age” is 60. The husband was born in 1969 – he is therefore 51 years of age. The relevant lump sum valuation factor will accordingly be somewhere between 0.8551 and 0.8345.

36By way of illustration, if the husband’s defined benefit entitlements are payable to him only as a lump sum, and if the lump sum benefit accrued as at 30 June 2020 is in fact $1,301,997.41 as proposed, the value determined by application of the method prescribed in the Regulations will be somewhere between $1,086,516 and $1,113,338.

37Self-evidently, there is at the very least a significant risk that the outcome resulting from the proper application of the Regulations will differ significantly from the gross figure presented by the parties as the relevant agreed value.

38The failure of the parties to introduce into evidence the rules of the superannuation fund causes additional difficulties.

39Firstly, as already noted, there is no evidence as to whether the husband has the option to take part of his entitlement in the form of a pension, or whether (as assumed for illustrative purposes above) he may only take his entitlement in the form of a lump sum. The valuation method prescribed by the Regulations differs significantly depending on the answer to that question.

40If there is an option for the husband to take all or part of his benefits in the form of a pension rather than a lump sum, still further questions arise relevant to the valuation of his interest. In some defined benefit schemes, reversion benefits are payable to a nominated beneficiary on the death of the member who was entitled to a pension. In such cases, a reversion valuation factor must be applied to the calculation of the member’s pension entitlement, before further calculations are undertaken of the present day lump sum value of that entitlement.

41Still further steps are required if the member has the option of taking his entitlements in a blend of a lump sum and an ongoing pension.

42The failure of the parties to consider the rules of the superannuation fund and the application of the Regulations means that I cannot be satisfied that the figure which they have agreed as being the value of the husband’s defined benefit interest for the purposes of a splitting order is accurate. The failure of the parties to introduce the rules of the superannuation fund into evidence means that the court simply does not have the required information to itself calculate that value, even if persuaded that it is appropriate to do so.

43Secondly, and crucially, the rules governing the relevant superannuation fund are required to enable a proper consideration of the justice and equity of the proposed splitting order.

44As the Full Court observed in Bulow,[1] a case decided in January 2019 and which I specifically drew to the attention of the parties and their lawyers at the status hearing on 25 June 2020, accumulation interests in the growth phase, and defined benefit interests in the growth phase differ in several important respects including the method by which the ultimate benefit is calculated, the risk to the member inherent in each, and the effect of an order pursuant to s 90XT(1)(a) allocating a base amount to the non-member spouse as is proposed by both parties in this case.

[1] (2019) 59 Fam LR 136.

45Where splitting orders are made in relation to an accumulation interest, the SIS regulations allow the creation of a new superannuation interest in the name of the non-member spouse, separating that spouse’s interest from the interest of the member spouse within the fund, and thereby achieving finality.

46Defined benefit funds are not regulated by Part 7A of the SIS Regulations, which operate to permit the creation of a non-member spouse interest. Accordingly, as the Full Court observed:

“it is therefore fundamental to a consideration of any proposed splitting order that the court consider the governing rules of such funds contained within their specific trust deeds. It is those rules which will determine the effect of any splitting order on the underlying interest within that particular fund. As an example, within a defined benefit fund the fund’s rules can dictate that a splitting order has significant effects on the formula by which a member’s ultimate entitlement is calculated”.

47The Full Court went on to state clearly that it is an error both to fail to consider the specific requirements and ramifications of the governing rules and to assume that the effect of an order pursuant to s 90XT(1)(a) is the same as it would be if the husband held an accumulation interest only. It is also an error to make the same assumption as to the effect of the splitting order on the non-member spouse.

Conclusion

48I appreciate that the parties both nevertheless wish to proceed to the making of consent orders on the basis of the evidence presently available. The first instance judge in Bulow proceeded with the trial at the request of the parties, notwithstanding concerns as to the available evidence, but the Full Court subsequently in allowing the appeal made it clear that the court’s “obligation to arrive at a judicial determination that a proposed splitting order is just and equitable includes an obligation to seek evidence in respect of matters plainly in issue and relevant, where evidence is lacking.”

49In short, by virtue of the deficiencies in evidence:

(a)I am unable to undertake the fundamental step of clearly identifying the legal and equitable interests of the parties in property including superannuation, and the values of those interests;

(b)I am unable to determine the relevant value of the husband’s defined benefit superannuation interest pursuant to the regulations;

(c)I am accordingly without power to make the superannuation splitting orders sought by the parties;

(d)I cannot in any event reach a proper determination as to the justice and equity of the proposed orders as the absence of required evidence prevents a consideration of the variables by which the husband’s present and future benefits will be calculated subsequent to any splitting order, or the nature form and characteristics of the interest which the wife would acquire subsequent to any such order. The Full Court has made it clear that “the justice and equity of any proposed splitting order cannot be considered without reference to both”, as those matters are “crucially relevant considerations” in the exercise of the discretion.

50I have considered whether, in the manner contemplated by the High Court in Harris v Calladine,[2] the lesser degree of satisfaction as to the justice and equity of proposed orders required in circumstances where those orders are sought by consent and the parties are represented might overcome the difficulty which I perceive were it not for the primary valuation issue identified; I conclude that in this case it would not.

[2] (1991) 172 CLR 84.

51Accordingly, I am unable to pronounce orders today in the terms agreed by the parties in relation to the splitting of superannuation. As requested by both parties, however, I am content to make interim orders for the alteration of their property interests other than superannuation in the terms which have been agreed. I propose, as foreshadowed with counsel, to retain the signed Minute with a view to hopefully pronouncing orders from chambers in relation to the parties’ superannuation interests when the necessary evidence is before me to enable orders to properly be made.

52I appreciate that the parties will be frustrated that in circumstances where they have reached an agreement I am unable to pronounce orders today to give full effect to that agreement.

53As the Full Court observed in Bulow, “the fact that particular considerations apply to defined benefit interests is, or should be, notorious as is the fact that the effects of splitting orders on those interests are fund specific.” Both parties are represented and were, in my respectful view, entitled to expect that their solicitors would anticipate the matters described by the Full Court as “notorious”, even without prompting from the court. I specifically drew the decision in Bulow to the attention of the solicitors for the parties at a status hearing nearly three weeks ago, urging them to read it and take the necessary steps in the time available prior to trial. It is unfortunate that, for whatever reason, those steps were not taken much earlier and apparently were not able to be taken in the time available between the status hearing and trial.

These reasons are the reasons for decision delivered on 15 July 2020, edited in places but only as to correct grammatical errors and some infelicity of expression without variation to the substance thereof.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Family Court of Western Australia.

KM
Associate

17 JULY 2020