Exxonmobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd
[2010] VSC 357
•25 AUGUST 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2001 02116
| EXXONMOBIL SUPERANNUATION PLAN PTY LTD ACN 000 384 814 | Plaintiff |
| v | |
| ESSO AUSTRALIA PTY LTD ACN 000 018 566 AND OTHERS | Defendants |
| AND BETWEEN | |
| ESSO AUSTRALIA PTY LTD ACN 000 018 566 | Plaintiff by Counterclaim |
| v | |
| EXXONMOBIL SUPERANNUATION PLAN PTY LTD ACN 000 384 814 AND OTHERS | Defendants by Counterclaim |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 26 AND 27 JULY 2010 | |
DATE OF JUDGMENT: | 25 AUGUST 2010 | |
CASE MAY BE CITED AS: | EXXONMOBIL SUPERANNUATION PLAN PTY LTD v ESSO AUSTRALIA PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 357 | |
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Practice and Procedure – Represented parties – Role of representative – Approval of compromise – Whether for the benefit of the absent persons – Consideration of issues – Supreme Court (General Civil Procedure) Rules 2005, r.16.01.
Trusts and Trustees – Superannuation Plan – Rectification of Trust Deed – Approval of the trustee’s decision to enter into Deed of Compromise – Supreme Court (General Civil Procedure) Rules 2005, r.54.02(c).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Archibald QC with Mr A Young | Clayton Utz |
| For the First Defendant | Mr N Young QC with Ms M Sloss SC, | Allens Arthur Robinson |
| For the Second Defendant | Ms J Batrouney SC with Mr S McLeish SC | Minter Ellison |
| For the Third Defendant | Mr R Brett QC with Mr K Lyons and Mr T Scotter | Corrs Chambers Westgarth |
| For the Fourth Defendant | Mr C Macaulay SC with Ms M Wall | Norton Rose |
HIS HONOUR:
Introduction
On various dates between 26 May and 7 June 2010, each of the five parties to this proceeding filed a summons seeking orders approving and giving effect to a compromise reached between them at a lengthy mediation (“the Compromise”). In this judgment I set out the background to the dispute which had arisen, explain the issues in the proceeding, refer to what occurred during the mediation, describe the effect of the Compromise and give my reasons for making the orders sought, including an order approving the Compromise.
Background
In April 2001, a number of significant problems were identified in the trust deed (“the Trust Deed”) of the ExxonMobil Superannuation Plan (“the Plan”). The Plan is an employer sponsored superannuation plan which provides retirement and other related benefits to employees of Esso Australia Pty Ltd (“the Company”) and other associated companies in the ExxonMobil group. The Plan was established by a Declaration of Trust made by the Company on 27 June 1966, which deed has been amended from time to time. Initially, the Plan was funded by contributions from the Company and by limited contributions from employees. However, since 1 July 2007, the defined benefits payable under the Plan have been solely funded by employer contributions.
The Company was the trustee of the Plan from its inception until 30 June 1990. Since 1 July 1990, the plaintiff, ExxonMobil Superannuation Plan Pty Ltd (“the Trustee”), has been the trustee of the Plan, pursuant to amendments made to the Trust Deed by an amending deed in 1990 (“the 1990 Amending Deed”). The 1990 Amending Deed was a deed poll executed by the Company on 27 June 1990.
After investigation of the problems, it was established that they principally stemmed from amendments to the Trust Deed made by the 1990 Amending Deed. There were two significant problems, which are discussed below, which formed the basis of the principal issues in this proceeding. The Company contended that certain of the amendments effected by the 1990 Amending Deed were neither intended nor authorised by the Company.
Subsequent to the 1990 Amending Deed, a number of other amending deeds were entered into by the Trustee and the Company in 1994, 1999, 2000 and 2002 which, the Company contended, perpetuated the two problems contained in the 1990 Amending Deed. Again, the Company contended that certain of the amendments effected by these deeds were neither intended nor authorised by the Company.
The amendments to the Plan in 2000 followed the worldwide merger of the Exxon and Mobil corporate groups. By an amending deed dated 19 October 2000, a new Schedule 5 was inserted into the Plan to create the Mobil section of the Plan. (The Esso section of the Plan is governed by the first four Schedules). Schedule 5 comprised Divisions A, B and C, which corresponded to sections A, B and C of the Mobil Plan. Mobil Plan members and their respective entitlements under the Mobil Plan were then transferred across from the relevant section of the Mobil Plan to the corresponding division of Schedule 5 of the Plan by way of a successor fund transfer.
By an amending deed executed on 20 October 2000 (“the 2000 Amending Deed”), a further division (Division D) was created within the Mobil section of the Plan. Members of Division A were invited by the Company to transfer to the new Division D. Upon accepting that invitation, they transferred to Division D and became entitled to receive benefits in accordance with the provisions of Division D. In Division D, the benefits provided to Class D Contributors consisted of a component for their past service accrued under the Mobil Plan and Division A of the Plan, and a component for their prospective service under Division D. Division D was drafted to provide benefits analogous to those enjoyed by members of the Esso section of the Plan in respect of prospective service under the Plan.
The Proceeding
On 21 December 2001, the Trustee commenced this proceeding by an originating motion which, as amended from time to time, sought answers from the Court to questions concerning the proper construction of certain provisions of the Trust Deed, and whether those provisions should be rectified.[1]
[1]The final version was the Third Further Amended Originating Motion dated 21 December 2009.
The Company is the first defendant in the proceeding, both in its own capacity and as representative for all other current participating employers in the Plan, namely:
(a) ExxonMobil Chemical Australia Pty Ltd;
(b) Mobil Oil Australia Pty Ltd;
(c) Mobil Exploration & Producing Australia Pty Ltd;
(d) Mobil Refining Australia Pty Ltd;
(e) Pegasus Retail Pty Ltd; and(f) ExxonMobil International Holdings Inc.
Whilst the latter two companies participate in the Plan as a formal matter, no records were located which indicated that either of them had any present or former employees who might be affected by the issues in this proceeding.
The second, third and fourth defendants were appointed by the Court as representatives of classes of persons who were affected or potentially affected by the issues raised in the proceeding (“the member representatives”).
The second defendant, Gavin David Fyfe, is an employee of the Company and a present contributor of the Esso section of the Plan. Mr Fyfe is a Platform Supervisor and former union representative. He was appointed by the Court to represent in the proceeding:
(a)all present contributors who were or might become entitled to benefits calculated under the Esso section of the Plan; and
(b)all recipients of employer-provided disability pensions (“Esso disability pensioners”) who were formerly contributors of, and who were or might become entitled to benefits calculated under, the Esso section of the Plan,
and any person who was or might become entitled to claim under them.
The third defendant, Roger David Went, is a former employee of the Company, and a former contributor of the Esso section of the Plan. He was appointed by the Court to represent in the proceeding all former contributors of the Esso section of the Plan:
(a) who retired on or after 21 August 1979; or
(b)who ceased service and became entitled to receive a disability pension on or after 21 August 1979, and who have become entitled to receive post-disability retirement benefits, either by having reached their normal retirement date or having become entitled to an early retirement benefit,
and any person who was or might become entitled to claim under them.
The fourth defendant, John Stuart Teasdale, is a former employee of Mobil Oil Australia Pty Ltd and of the Company. He was appointed by the Court to represent in the proceeding all present and former contributors who are or were Transferred Members of Division D of the Mobil section of the Plan (“Division D transferred members”), and any person who was or might become entitled to claim under them.
At the time of the mediation, the Company and the Trustee advised that, as at 30 June 2008, there were 819 present contributors, 28 Esso disability pensioners, 1,016 former contributors, 491 present Division D transferred members (including four in receipt of a disability pension) and 401 former Division D transferred members. However, since that date, the numbers in some classes or sub-groups have changed as the personal circumstances of the contributors have changed.
The Company filed a counterclaim, in the proceeding, in its own right seeking rectification of the 1990 Amending Deed and the relevant subsequent deeds.[2] The member representatives filed defences to the counterclaim opposing rectification. The parties also exchanged statements of facts and contentions concerning the issues. The evidentiary material apparently consisted of more than 80 affidavits filed by the Company and the Trustee and one affidavit filed jointly by the third and fourth defendants. Those affidavits and exhibits comprised approximately 150 folders.[3]
[2]The final version of the pleading was the Second Further Amended Statement of Claim in relation to the Counterclaim dated 18 December 2009.
[3]The Application Book prepared for the purpose of the approval applications, which contained only relevant extracts from the affidavit material, eventually comprised 12 folders.
The Issues in the Proceeding
The first principal issue in the proceeding concerned Death Benefits in Retirement (“the DBIR issue”). Death Benefits in Retirement were introduced by an amending deed in 1982 (“the 1982 Amending Deed”). The new clauses 5 and 7 of Part A of the Fourth Schedule to the Trust Deed provided a lump sum benefit payable, in certain circumstances, to the estate and/or dependants of a retired former contributor of the Plan who died after reaching his or her normal retirement date. At that time most retired former contributors received a pension rather than a lump sum benefit. Relevantly, the purpose of Death Benefits in Retirement was to ensure that the aggregate benefits payable to or in respect of a retired former contributor who died after his or her normal retirement date would be no less than the amount of the former contributor’s total contributions to the Plan plus interest.
Clause 5 applied in the case of a former contributor who died leaving no surviving spouse or dependent child to whom a surviving spouse or dependent children’s benefit was payable, whereas clause 7 applied in the case of a former contributor who died leaving a surviving spouse and/or a dependent child who was entitled to receive a surviving spouse or dependent children’s benefit. Although clauses 5 and 7 were expressed in different terms, each provided an additional “top-up” lump sum benefit so that the aggregate of the amounts paid to or in respect of a former contributor, that is, the benefits paid to the former contributor, and to any spouse and/or dependent children (referred to in clause 7 as the “total sum”) would be no less than the “minimum benefit” (as defined in clause 7), which comprised the former contributor’s notional Leaving Service Benefit, plus interest from the date of retirement to the date of death. A Leaving Service Benefit was payable to a contributor who ceased service, for example, by resigning, and did not qualify for a retirement benefit. Each clause required the “total sum” of the amounts actually paid to or in respect of the former contributor to be determined. If there was any shortfall between the “total sum” and the “minimum benefit”, then the amount of that shortfall was payable to the former contributor’s dependants or estate.
By the 1990 Amending Deed the Company made a number of intended changes to the Plan which were approved by the Company’s Management and Development Committee (“the MDC”) in accordance with the formal system of management (“the System of Management”) that had been developed by Exxon Company International (“ECI”) and applied to all affiliates of Exxon Corporation (now ExxonMobil Corporation). These changes included:
(a)improving the Leaving Service Benefit by enhancing the vesting formula and changing the compound interest rate that applied to it;
(b)re-orienting the delivery of retirement benefits from pension to lump sum by formally allowing contributors to elect to receive a lump sum retirement benefit in lieu of a retirement pension; and
(c)appointing a corporate custodian trustee in place of the Company and allocating the various powers and discretions and responsibilities between the Company and the Trustee.
By the 1990 Amending Deed, each of clauses 5 and 7 was replaced with a new clause which varied the wording of the calculation of the interest rate from:
… compound interest thereon up to the date of his or her death at approximately the rate of 4.5% per annum up to 1st April 1981 and thereafter at such rate as the Company may determine
to
… compound interest thereon up to the date of his or her death at the rates determined from time to time by the Trustee prior to the Adoption Date and thereafter at the Fund Earning Rate.
This amendment had two discrete aspects:
(a)for the period prior to 30 June 1990, it transferred the discretion to determine the applicable interest rate from the Company to the Trustee; and
(b)for the period after 30 June 1990, it divested the Company of the discretion to determine the applicable interest rate and substituted the Fund Earning Rate in place of a rate to be determined by the Company.
The Company contended that neither of these changes was authorised or intended.
Also by the 1990 Amending Deed, by reason of a linkage between the Leaving Service Benefit and the retirement benefit, on the one hand, and Death Benefits in Retirement, on the other, the changes that were made to the Leaving Service Benefit and the retirement benefit had the consequential effect of significantly improving Death Benefits in Retirement by increasing the amount of the benefit the longer the former contributor lived. The Company contended that at the time it entered into the 1990 Amending Deed, it was not aware of this linkage and did not intend or authorise the improvement to the Death Benefits in Retirement.
By a deed dated 1 September 1994 (“the 1994 Amending Deed”), the Trust Deed was amended so as to ensure compliance with the requirements of the Superannuation Industry (Supervision) Act 1993 (Cth) and to enable the Plan to become a regulated fund under that Act. At the same time, all of the prior amendments were consolidated into the one document. As a result, the provisions giving rise to the Death Benefits in Retirement issue were re-enacted in the same terms as in the 1990 Amending Deed.
Thus, the DBIR issue gave rise to the claims by the Company for rectification of the 1990 and 1994 Amending Deeds to eliminate the allegedly unintended and unauthorised amendments. Only the members of the classes represented by the second and third defendants were potentially affected by the DBIR issue.
The second principal issue concerned amendments to the definition of “final average pay” made by the 1990 Amending Deed (“the FAP issue”). The definition of “final average pay” was important because it was the remuneration element used in the calculation of a number of benefits provided for in the Plan.
The 1990 Amending Deed omitted the rule 1(a) definition of “final average pay” from the 1982 Amending Deed and inserted a new definition in its place. In effect, the new definition made the following deletions:
“final average pay”,
except where otherwise expressly provided, means the highestaverageannual rate of Actual Basic Pay received bythea contributorduring
(a)in the case of a contributor who ceased service prior to 30th October 1970, any period of sixty consecutive months; or
(b)in the case of a contributor who ceased service on or after 30th October 1970 but prior to 1st January 1978, any period of thirty six consecutive months; or
(c)in the case of a contributor who ceased service on or after 1st January 1978, any period of twelve consecutive months
during the period of ten years immediately preceding his or her normal retirement date or the date he or she actually ceases service, whichever date is the earlier.
The question raised by the FAP issue was whether the amendments to the rule 1(a) definition of “final average pay” by the 1990 Amending Deed altered the method of determining a contributor’s “final average pay” under that definition from an average salary basis to an annualised salary basis (or some other basis). The difference between the two was as follows. The average salary basis averaged the member’s salary over a certain period of time in the period leading up to a contributor’s retirement. It took account of variations in salary over the relevant averaging period, and weighted each salary according to the length of time that salary applied during the period. On the other hand, the annualised salary basis took a member’s (monthly, fortnightly, weekly or daily) salary paid at a particular time, which might be the date of retirement or some other date, and then converted that amount to an annual salary. It gave full weight to the highest salary of an employee at a particular point of time, even though that level of salary might only have been received for a short time. The Company contended that if the amendments made by the 1990 Amending Deed produced the result that the annualised salary basis was to be used in calculating “final average pay”, which it disputed, then it was neither intended nor authorised.
The 1994 Amending Deed re-enacted the rule 1(a) definition of “final average pay” in exactly the same form as it had been amended by the 1990 Amending Deed.
By a deed dated 21 January 1999 (“the 1999 Amending Deed”), the rule 1(a) definition of “final average pay” was altered by substituting the expression “Legislated Benefit Date” for the expression “normal retirement date”, to cater for the legislative change allowing superannuation benefits to accrue until a person reached 70 years of age. This amendment had no bearing upon the issue of whether a contributor’s final average pay was to be determined on an average salary basis or an annualised salary basis.
The amendments made by the 2000 Amending Deed referred to above included a definition of “Final Average Pay or FAP” for use in Division D that embodied the same essential concept of “final average pay” as was then in use in the Esso section of the Plan.
In order to stop the Final Average Pay problem continuing, by a deed dated 5 April 2002 (“the 2002 Amending Deed”) the previous definition of “Final Average Pay or FAP” was replaced with a bifurcated definition, paragraph (a) of which was substantially the same as the definition in the 2000 Amending Deed. Paragraph (b) introduced a new definition for all new members which made it clear that the average salary basis was to be used in the future for these members.
Thus, the FAP issue gave rise to the claims by the Company for rectification of the 1990, 1994, 1999, 2000 and 2002 Amending Deeds to eliminate the allegedly unintended and unauthorised amendments. The FAP issue potentially affected the members of the three classes represented by the second, third and fourth defendants.
A less contentious issue concerned the construction of clause 5 of Part A of the Fourth Schedule to the Trust Deed (“the construction issue”). Initially there was some disagreement between the parties over the correct construction of that provision. The dispute was whether it was proper to construe the provision so that a lump sum benefit would only be payable if the sum of the amounts paid or payable as described in clause 5(b) was less than the benefit together with interest calculated pursuant to clause 5(a).
Another minor issue concerned the past administration of the Plan by the Trustee with respect to the “final average pay” definition (“the administration issue”). Until 2001 the Trustee had administered the Plan on the basis that a contributor’s “final average pay” was determined on the average salary basis. It was unaware of the possibility that the 1990 Amending Deed had brought into operation the annualised salary basis for determining “final average pay”. The question that arose was whether, if the rectification orders were made, the Trustee needed to go back and re-do the calculation of a contributor’s “final average pay”.
The Mediation
On 13 March 2009, Whelan J ordered by consent that the proceeding be referred to mediation, to be conducted by the Honourable Michael McHugh AC QC. The mediation commenced on 17 June 2009 for an initial session of two days. The mediation was then adjourned and continued on the following days: 28 July, 14 and 21 August, 14 and 15 September, and 5 and 11 November 2009. The mediation sessions were generally attended by representatives of the Company and the Trustee, the individual member representatives, and their respective counsel, solicitors and actuarial advisers. Substantial work also took place outside of the formal mediation sessions, including several meetings between the actuaries.
An actuary engaged by the Company to assist in the mediation, Mr Richard Codron of Mercer (Australia) Pty Ltd, estimated the amount of additional liability to the Company attributable to the DBIR issue and the FAP issue, if the deeds were not rectified. That amount, expressed as a net present value as at 1 October 2009 and inclusive of contributions tax, was approximately $510 million (“the Company’s estimated potential liability”). By far the greater part of that amount, approximately $462 million, was attributable to the DBIR issue. Mr Codron’s estimate was based on certain assumptions, including assumptions referable to groups of members.
Over the course of the negotiations, offers and counter offers were made and rejected by the parties. The offers and counter offers were apparently expressed in terms of monetary amounts, which naturally also represented percentages of the Company’s estimated potential liability. Eventually, agreement was reached on the amount of $135 million to be contributed by the Company by way of additional benefits (“the compromise benefits”) in return for the member representatives consenting to the rectification of the relevant deeds. This was calculated to be 26.47% of the Company’s estimated potential liability (“the agreed percentage”).
Once agreement was reached on the figure of $135 million, the parties turned their attention to the detailed design of the compromise benefits. Although Mr Codron’s model had also calculated the net present value (“the NPV”) of each individual member’s component of the Company’s estimated potential liability, the group assumptions used were not appropriate for determining the value of the potential compromise benefits applicable to an individual. This was because, when considering the position of an individual, a different range of assumptions could be used, relevant to that individual’s own particular circumstances.
Moreover, the Company did not consider it appropriate to provide compromise benefits based on individual NPVs (save where a member’s potential entitlement to compromise benefits had already “crystallised”) because:
(a)members were thought to be distrustful of a benefit they could not verify and understand and the calculation of an individual’s NPV required a sophisticated actuarial model which could not be used by the member or his or her financial planner without actuarial assistance; and
(b)individual NPVs were calculated at a particular point in time using assumptions about the future set for the group as a whole and not for a particular individual and these actuarial assumptions might vary over time according to changed circumstances and actuarial practice.
The Company wanted to have readily understood and explicable methods of calculating the substituted benefits.
The member representatives (with the benefit of actuarial advice) accepted the Company’s position that, for those member categories whose potential additional benefit entitlements were prospective (that is, had not yet “crystallised”), the compromise benefits should be calculated by reference to compromise benefit factors relating to the individual member’s circumstances, such as salary and length of service.
However, as a means of assessing the fairness of the Company’s proposal as between members, and as between classes and sub-groups of members, the member representatives sought to test the compromise benefits offered by the Company by comparing them against the individual NPV of each affected member. This was done, notwithstanding that the parties recognised the limitations of the individual NPVs set out above, because the parties were agreed that, despite these limitations, the individual NPVs provided the best proxy against which the fairness of the compromise, as between affected members and classes of affected members, could be tested.
When this exercise was initially carried out, there were, as there was always going to be, some variances between the individual compromise benefits outcomes and the agreed percentage of the individual NPVs. In order to address the member representatives’ desire for the compromise benefits to approximate, so far as was possible, the individual NPVs of each affected member, the design of the compromise benefits was adjusted in a number of ways to minimise variance. The classes of members were broken down into different sub-groups and different compromise benefit formulae were used for each sub-group. Floors and ceilings were also inserted into the benefits for some sub-groups to reduce the variances.
Much effort was therefore devoted during the period of the mediation to attempting to ensure that the Company’s proposal was fair and equitable to all of the various classes and sub-groups of members.
The Compromise
Ultimately, a Deed of Compromise was executed by the parties on 3 December 2009. Two Amending Deeds giving effect to the compromise benefits have also been executed and are held in escrow. As previously stated, the Company agreed to contribute a compromise benefit in respect of each principal issue (“the DBIR compromise benefit” and “the FAP compromise benefit”) in return for the member representatives consenting to the rectification of the relevant deeds. Each of the compromise benefits is to be calculated using different formulae for the various classes and sub-groups of contributors. The Company also agreed to the fixed and higher interest rate of 5% being used in calculating the Death Benefits in Retirement payment.
The DBIR compromise benefit is a lump sum benefit that has been designed to be payable to the contributor upon reaching his or her normal retirement date rather than as a death benefit payable to the member’s estate and/or dependants. For a retired former Esso section contributor who has already reached his or her normal retirement date, the applicable DBIR compromise benefit will be payable on the date of the Court order approving the Compromise (“the Approval Date”).
The FAP compromise benefit is a lump sum benefit that has been designed to be payable to or in respect of a contributor on his or her retirement, in the case of a present Esso section contributor, or on his or her retirement, resignation or death in service, in the case of a present Division D transferred member in the Mobil section. For former contributors of both sections, who retired on or after 30 June 1990 and who would have been entitled to a higher retirement benefit if his or her Final Average Pay were determined on the annualised basis, the applicable FAP compromise benefit will be payable on the Approval Date.
The Compromise was conditional on a number of conditions precedent, including the Court granting the rectification relief sought, approving the Compromise and making certain other orders necessary for the disposal of the issues in the proceeding. Each of the other conditions precedent has been either achieved or waived.
Approval of the Compromise
The Company and the member representatives were appointed to represent their respective classes in the proceeding under r.16.01(2) of the Supreme Court (General Civil Procedure) Rules 2005 (“the Supreme Court Rules”). Rule 16.01(3) provides that, where such a representation order has been made, any judgment or order in the proceeding binds the members of the represented classes as if they were parties to the proceeding.
In Arakella Pty Ltd v Paton[4] Austin J considered the role of a representative. His Honour said that a representative party was not required to oppose the orders sought by the other party in the proceeding. He continued:
The representative's responsibility, acting honestly and fairly, is to represent what he or she considers to be the interests of the represented group. If the representative forms the view that it is in the interests of the represented group that some or all of the orders sought by the other party should be made, then his or her responsibility is to inform the Court accordingly, providing reasons in support of that view in order to assist the Court to reach its decision. Indeed, for the representative to do otherwise would be inconsistent with his or her role as representing the interests of the represented group.[5]
[4](2004) 60 NSWLR 334.
[5](2004) 60 NSWLR 334, [54].
Each of the member representatives has filed an affidavit deposing to his involvement in the proceeding and the mediation. Based on those and other affidavits I am satisfied that each member representative:
(a)received actuarial and legal advice in conference concerning the Compromise before authorising his solicitors to enter into the Deed of Compromise on his behalf;
(b)formed the view that it was in the best interests of the class he represented that the orders sought under the Deed of Compromise should be made;
(c)received subsequent written advice from the actuary and from counsel; and
(d)received further actuarial and legal advice before authorising his solicitors to enter into the two Amending Deeds.
I am also satisfied from all of the evidence that no member representative is aware of any member of his represented class who objects to the approval of the Compromise.[6] The evidence establishes that appropriate notification of the Compromise and of the applications seeking approval of the Compromise was given to all present and former contributors, and all persons who were or might become entitled to claim under any of these contributors, of whom the Trustee was aware and had contact details. Further, I am satisfied that any queries arising from the notification were satisfactorily dealt with.
[6]Arakella Pty Ltd v Paton (2004) 60 NSWLR 334, [66] (Austin J).
Rule 16.01(4) of the Supreme Court Rules provides as follows:
(4)Where a compromise of a proceeding is proposed and some of the persons who are interested in, or who may be affected by, the compromise are not parties (including unborn or unascertained persons) but—
(a) there is a party in the same interest—
(i) who assents to the compromise; or
(ii)on whose behalf the Court sanctions the compromise; or
(b)the absent persons are represented by a person appointed under paragraph (2) and the appointed person so assents—
the Court, if satisfied that the compromise is for the benefit of the absent persons, may approve the compromise and order that it shall be binding on the absent persons, and they shall be bound accordingly except where the order is obtained by fraud or non-disclosure of material facts.
Thus, the Court may approve the Compromise if satisfied that it is “for the benefit of the absent persons”, that is the members of the represented classes. In its ordinary meaning, something is “for the benefit of” a person if it is an advantage or profit for that person,[7] or a gain for that person.[8]
[7]The Shorter Oxford English Dictionary on Historical Principles, p.181.
[8]Butterworths Australian Legal Dictionary, p.121.
In Re Ansett Australia Flight Engineers Superannuation Plan,[9] Byrne J approved a compromise arrangement in relation to the distribution of a surplus in a superannuation fund which was being wound up following the collapse of the employer and the termination of the employment of its employees. One of the nine defendants was joined as a representative party under r.16.01(2) to represent himself and all other former members (and persons claiming through them) whose benefits had been paid in full. There were two sub-classes: those former members who had been paid out prior to 1 July 1996, the date on which there was an accumulation of surplus in the fund; and those paid out after the surplus date. Under the settlement, those in the first of the two sub-classes did not take a share.
[9][2004] VSC 18.
Byrne J said that he was told that the proposed distribution was proper having regard to the prospects of success of each of the claimants to the fund in what threatened to be expensive litigation with an uncertain outcome. His Honour said that he was satisfied that the settlement was for the benefit of those represented persons who were members after the surplus date because their entitlement to the proposed distribution reflected the risk that “they might be entirely unsuccessful”. With respect to the former members who were paid out prior to the surplus date and who were to receive nothing under the settlement, his Honour said that he was also satisfied that the settlement was for their benefit. He continued:
In this context "benefit" is not limited to financial benefit.[10] From a reading of the material it appears that these claimants have little prospect of success so there is no benefit to them for the litigation to go forward. To the extent that they are aware of the litigation or may become aware of it, they will be spared the anxiety of a trial and a possible risk that part of their own costs might call [sic] upon them. I am, of course, aware that these are remote prospects in the present case, but the removal of even such a risk is a benefit for them. I will therefore give my approval to the distribution pursuant to r 16.01(4).[11]
[10]In re Earl of Strafford, deceased [1980] 1 Ch 28 at 33, per Megarry V-C.
[11][2004] VSC 18, [8].
As can be seen from the above quotation, Byrne J based his statement that “benefit” was not limited to financial benefit on the following passage from the judgment of Megarry V-C in In Re Earl of Strafford, deceased:
Nor is a strict mathematical and actuarial calculation of benefits the only criterion: a compromise which, on the best estimate available confers unequal financial benefits may nevertheless be a good compromise which ought to be accepted if it is likely to resolve long-standing family disputes and promote family peace. A beneficiary who benefits least in money may benefit most in the value that he or she places on peace of mind. It will be remembered that under the Variation of Trusts Act 1958 the word “benefit” has been construed as not being confined to financial benefit.[12]
[12][1980] 1 Ch 28, 33.
If read too literally, the statements quoted above from Re Ansett Australia Flight Engineers Superannuation Plan and In re Earl of Strafford, deceased might suggest that every settlement is “for the benefit of the absent persons”, even if they receive no or little financial gain, because it has brought to an end the anxiety of litigation and the possibility (albeit remote) of liability for costs. Obviously, this is not what was meant by the learned judges in question. It seems to me that what was being said is that the benefit received by the absent persons from a settlement, whether it be little or large, has to be weighed against their prospects of success should the matter proceed to trial.
I was also referred to the judgment of Mummery LJ in Smithson v Hamilton[13] approving the compromise of an appeal from a decision of Park J declining to set aside an amendment to a company pension plan which had been adopted by mistake. Rule 19.76 of the Civil Procedure Rules 1999 provided that the Court could approve a settlement “where it is satisfied that the settlement is for the benefit of all represented parties”.
[13][2008] EWCA Civ 996.
In reaching the conclusion that the settlement was for the benefit of all of the represented parties, his Lordship referred to the fact that he had had the benefit of reading the judgment in the court below, the skeleton arguments prepared for the purposes of the appeal and the written submissions from both sides on the question of the compromise. He continued:
I am able to say that I am satisfied by the submissions which I have heard, both with all parties present and in the case of each side with the other one being absent, that I ought to make an order stating that I am satisfied that the compromise in the terms of the agreement contained in the schedule to the draft order is for the benefit of all persons represented by both representation orders.[14]
[14][2008] EWCA Civ 996, [11].
There was disagreement between the parties in this proceeding over whether any assistance could be gained from the case law on approval of proposed compromises in representative proceedings under Part IVA of the Federal Court of Australia Act 1977 (Cth) and group proceedings under Part 4A of the Supreme Court Act 1986. Counsel for the Company and for the third and fourth defendants submitted that the cases were of some assistance whereas counsel for the second defendant doubted this because of the differences in wording between the class action legislation and the test to be applied in this case. In their written submissions, counsel for the second defendant submitted that:
… the emphasis of the case law concerning group and representative proceedings on notions such as “best interests” and tests of “fair and reasonable and adequate” must not be treated as a substitute for the test in Rule 16.01(4), which provides simply for a test of “benefit”.
Whilst it is, of course, essential that the Court applies the test to be found in r.16.01(4), there are, in my opinion, passages in the cases relating to class actions which provide useful guidance to the approach to be followed in this proceeding. For example, in Williams v FAI Home Security Pty Ltd (No.4),[15] Goldberg J said:
Ordinarily the task of a court upon an application such as this, is to determine whether the proposed settlement or compromise is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement. Ordinarily in such circumstances the court will take into account the amount offered to each group member, the prospects of success in the proceeding, the likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer, the terms of any advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding, the likely duration and cost of the proceeding if continued to judgment, and the attitude of the group members to the settlement.
[15](2000) 180 ALR 459, [19].
A similar approach has been adopted in this Court. In Harrison v Kerrili Pty Ltd,[16] Gillard J said in respect of an application for approval of a compromise under s.33V(1) of the Supreme Court Act:
Although Part 4A of the Supreme Court Act does not state the matters that the Court should consider on an application for approval of [a compromise of] a group proceeding, such applications are not new, and the Court has, over many, many years, considered and determined applications for approval of settlements, particularly in proceedings such as claims by infants and by persons under some disability.
The paramount consideration on an application such as the present is whether the proposed settlement is in the best interest of the claimants. In the majority of disputed proceedings in litigation, there is a risk that a claimant may fail, or receive substantially less, than what is sought. Hence, it is a question of balancing the risks which, as I have stated, are inherent in all litigation, and seeking to determine whether, if the matter was to go to trial, the complaint may recover a less favourable outcome than that proposed in the settlement.
Hence, the main concern in an application such as the present is to identify the risks involved in the litigation, to weigh them, and to seek to determine the likely outcome of the proceeding, and compare it with the settlement.
[16][2007] VSC 277, [44]-[46].
If a settlement is considered to be appropriate or fair and reasonable when weighed against the chances of the absent members obtaining a better outcome at trial and the risks and potential burdens of litigation, then it can safely be concluded that it is “for the benefit of the absent persons” because it is in their best interests to accept what has been offered rather than reject it and run the risk of receiving nothing or substantially less. But if the financial gain to the absent members from a settlement is considered too low when weighed in this balancing exercise then it would not be correct to conclude that it was for their “benefit”. Further, in the case of members who receive nothing from a settlement because they have no chance of succeeding at trial, it can be concluded that the settlement is for their benefit because it brings to an end litigation which was serving no valid purpose as far as they are concerned and might even be exposing them to a potential liability for costs.
Other important considerations to bear in mind when weighing up the prospects of the parties obtaining a more favourable result at trial are that:
(a)it is difficult for the Court to know more about the actual risks of the litigation than the parties’ legal advisers; and that
(b)the Court looks to whether the amount falls within a range that may be considered reasonable having regard to the respective strengths and weaknesses of the parties’ position in the litigation, rather than deciding for itself whether the settlement provides what the Court itself considers to be the most fair and reasonable outcome.[17]
[17]Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Limited (No.2) (2006) 236 ALR 322, [50] (Jessup J).
In this proceeding, all of the parties are asking the Court to approve the Compromise. The following issues were advanced as relevant to deciding whether the Compromise was “for the benefit of the absent persons”:
(a)whether the overall settlement sum was reasonable in light of the Company’s chances of success in respect of its claims for rectification; and
(b)whether the Compromise was fair and reasonable as between each representative party and the represented class members; as between the various classes; as between the various sub-groups within each class; and as between the members within each sub-group.
The first issue involves looking at the question of rectification. Where, by mistake, a written instrument does not accord with the intention of the party or parties who executed it, a court of equity has power to order that the instrument be rectified so as to make it accord with the true intention of the party, or the shared intention of the parties, at the time it was executed.[18] Apart from the question of what that intention was, the parties addressed two other important questions. The first was whether rectification was available when the document sought to be rectified contained the intended word but there was a mistake as to their effect or true construction. The second was whether there was an automatic follow-through of rectification to the post-1990 Amending Deeds.
[18]Snell’s Equity (31st ed, 2005) at [14-02], [14-14]. See also Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 331 (Mahoney A-P), 340 (Sheller JA) and 345 (McLelland A-JA); The Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526, [10]-[12] (Tadgell JA), [34]-[39] (Phillips JA) and [44] (Chernov JA).
The parties referred me to the closely analogous case of AMP (UK) plc v Barker.[19] In that case, the trustees of a pension scheme amended the rules of the scheme, intending to increase the benefits payable to those who were forced to leave service as a result of incapacity. However, the trustees and the members of the board of the company that approved the changes overlooked the fact that, under the rules of the scheme, there was a link between the incapacity benefits and the benefits payable to “early leavers” generally.[20] Collins J found that it was clear on the evidence that both the company and the trustees had in mind only increased benefits for incapacity and that both the company and the trustees “had not the slightest intention” to benefit early leavers in general.[21] His Lordship rejected as “quite unreal” the argument that the company and the trustees intended simply to pass a resolution containing the words which it did in fact contain, or that they intended simply to sign anything which was put before them.[22] Accordingly, the rules of the scheme were ordered to be rectified.
[19][2001] PLR 77.
[20][2001] PLR 77, [3]-[4].
[21][2001] PLR 77, [48], [67].
[22][2001] PLR 77, [69]-[71].
As the orders for rectification are sought by consent, it is neither necessary nor appropriate for me to express a view on these questions concerning rectification. Rather, what I have to decide is whether the Compromise is appropriate and should therefore be approved.
In their written submissions, counsel for the Company accepted that it was necessary to show that there was sufficient evidence before the Court to justify the making of rectification orders as part of a compromise of the proceeding to which all parties have consented.[23] That evidence must be in the form of facts that are agreed or determined by reference to evidence in the case.[24] Counsel for the Company placed great reliance on the evidence concerning the role of the MDC as the designated decision-making body in respect of superannuation benefits within Exxon’s System of Management in support of its contention that all of the amendments in question were unintended and unauthorised. They emphasised that there was no evidence that the allegedly unintended changes were ever considered and/or approved by the MDC or by the shareholder ECI in accordance with Exxon’s strict hierarchy of decision-making. Counsel also submitted that it was significant that the Company’s evidence was not contradicted by any other evidence during the contested phase of the litigation.
[23]Constantinidi v Ralli [1935] Ch 427, 436-437 (Eve J).
[24]Bass v Permanent Trustee Company Limited (1999) 198 CLR 334, [56] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ).
The amount of $135 million to be contributed by the Company by way of compromise benefits was approximately 26.5% of the Company’s estimated potential liability. Counsel for each of the parties in their confidential opinions addressed the question of whether this result was a reasonable reflection of the Company’s chances of success on the rectification question.
In this context, an important additional benefit of the Compromise is that the compromise benefits will be paid as a lump sum to the contributor on retirement rather than to his or her estate on death. This means that the contributor will have the ability to continue to earn interest on the compromise benefits after retirement, at rates that could exceed the 5% or less which the Company would have paid had it succeeded in its claims for rectification.
In many applications for approval of a compromise, an important factor to consider is the cost of continuing with large, complex and lengthy litigation. The potential exposure of the representative and/or the represented parties to a large costs liability can be a very significant matter. Here, this issue has not been so important because the Company has in effect been paying the legal and actuarial costs of all parties (through its funding of the Plan). Nevertheless, this is still a factor to be taken into account given the difficulties the member representatives would face if the Company’s approach were to change.
In my opinion, having looked at the Company’s evidence and having carefully read and considered the detailed confidential opinions of counsel for the second, third and fourth defendants, I am satisfied that there is an appropriate evidentiary basis for granting rectification and that the overall settlement sum is within the range of reasonable outcomes in light of the Company’s chances of success in respect of its claims for rectification.
I turn then to the second issue, namely whether the Compromise was fair and reasonable as between each representative party and the represented class members; as between the various classes; as between the various sub-groups within each class; and as between the members within each sub-group.
Given the way the compromise benefits have been structured no issue arises as to whether the Compromise is fair and reasonable as between each representative party and the represented class members. Whatever benefit the three member representatives will or might receive depends into which category and class they fall. No special provision was made for any of them. Thus, it is possible that one or more of the member representatives may not receive a compromise benefit or that any compromise benefit received might be more or less than the agreed percentage.
As previously stated, the compromise benefits are to be calculated according to agreed formulae for the various sub-groups rather than as the agreed percentage of an individual’s NPV. Considerable work was performed in an attempt to equalise the compromise benefits payable to each of the various sub-groups. (This had the effect of increasing the estimated settlement sum to 26.54% of the Company’s estimated potential liability). Nevertheless, some differences between the classes and the various sub-groups within the classes remained. This can be illustrated in broad terms by the following table, which summarises the estimated potential outcome for each of the compromise benefits as at 1 October 2009 by class and sub-group:
Member Classes and Sub-Groups
DBIR
Ratio
FAP
Ratio
Total
Ratio
Second Defendant
Current
$67,414,781
26.46%
$3,489,496
26.65%
$70,904,277
26.47%
Disability pensioners
$1,892,803
29.77%
$53,914
58.02%
$1,946,718
30.18%
$69,307,585
26.54%
$3,543,410
26.88%
$72,850,995
26.56%
Third Defendant
Deceased
$1,074,246
26.47%
$90,012
26.47%
$1,164,258
26.47%
Pensioners
$3,102,287
26.80%
$161,131
26.47%
$3,263,418
26.78%
Pre-1990 retirees
$4,913,398
26.59%
―
―
$4,913,398
26.59%
Post-1990 retirees
(over 65)$32,206,245
26.49%
$1,428,758
26.47%
$33,635,002
26.49%
Post-1990 retirees (under 65)
$15,707,689
26.51%
$799,019
26.47%
$16,506,709
26.51%
$57,003,865
26.52%
$2,478,920
26.47%
$59,482,785
26.52%
Fourth Defendant
Division D current
―
―
$2,028,004
26.56%
$2,028,004
26.56%
Division D former
―
―
$665,726
26.47%
$665,726
26.47%
$2,693,730
26.54%
$2,693,730
26.54%
Total
$126,311,449
26.53%
$8,716,061
26.65%
$135,027,510
26.54%
As the above table reveals, the ratio of the estimated liability to the total potential liability is virtually the same as between the relevant classes in respect of both issues. For the DBIR compromise benefit, the ratio is 26.54% for the class represented by the second defendant, and 26.52% for the class represented by the third defendant. For the FAP compromise benefit, the ratios are 26.88%, 26.47% and 26.54% for the classes represented respectively by the second, third and fourth defendants. Were it not for the higher estimates of the FAP compromise benefit for the small category of Esso disability pensioners, the differences would be even less. For the total of the compromise benefits, the ratios are remarkably similar, namely 26.56%, 26.52% and 26.54%
The above table also reveals that the differences in the ratio of the estimated liability to the total potential liability as between each sub-group within the three classes are very small, with the exception of both compromise benefits for Esso disability pensioners. Putting that sub-group to one side the ratio for the DBIR compromise benefit across each sub-group ranges between 26.46% and 26.80%, the ratio for the FAP compromise benefit across each sub-group ranges between 26.47% and 26.65% and the ratio for the total of the compromise benefits across each sub-group ranges between 26.47% and 26.78%.
Figures prepared by the actuaries advising each of the member representatives demonstrated that the variances within each sub-group were also limited. In every case, the vast majority of members within a sub-group were anticipated to receive around about the agreed percentage. The others were either above or below that range. For those above the range, the actual dollar amounts in question were so small that these exceptions did not mean that the pool was going to be unfairly reduced by some members potentially receiving excessive benefits. For those below the range, the percentage deficiency was in all cases very small. A possible exception to this conclusion was the category of disability pensioners who might receive a substantially lower figure if they chose to retire before the age of 65. This was thought to be an extremely unlikely event because there was no incentive to do so. In any event, the Company agreed to advise them that it would be in their best interests not to retire before reaching 65 years of age.
However, there are some members of the classes who will not receive any financial benefit, or only a lesser benefit, from the Compromise. First, there are those members who would not have received any financial benefit even if the deeds remained unrectified. In my opinion, the Compromise can still be for their benefit as it will bring to an end litigation which served no valid purpose as far as they are concerned and ends any potential, but extremely remote, exposure to costs. A slight additional benefit for these members is that the Compromise will bring to an end the costs of all parties other than the Company being met from the Plan.
There are also some (as yet unascertained) members who may not receive any financial benefit from the Compromise. This is because, although they potentially stand to gain, as events turn out they do not qualify for the benefits. Examples could be a contributor who died before the age of 65 in the case of the DBIR compromise benefit, and a contributor who had not received a salary increase in the last 12 months before retirement in the case of the FAP compromise benefit. I have no difficulty in concluding that the Compromise could be “for the benefit of” someone who potentially stands to gain a financial benefit, even though he or she does not eventually receive that benefit.
Finally, there are the beneficiaries of the estates of, or the dependants of, present and former contributors, who would have become entitled to the disputed Death Benefits in Retirement if the Company failed to have the relevant deeds rectified. As a result of the Compromise these persons will not stand to benefit from the potentially significantly larger Death Benefits in Retirement payment in respect of the deceased contributor. However, they will benefit from the agreement to apply the 5% interest rate in calculating the Death Benefits in Retirement payment. Further, in general terms, such persons might, but not necessarily will, benefit indirectly from the compromise benefits as a result of a contributor’s assets being increased during his or her lifetime.
Although the compromise benefits are not exactly the same for each contributor, each of the actuaries retained by the parties has expressed the view that the overall result is fair and equitable both between and within the various classes and sub-groups.
After considering all of the above information, I have concluded that the Compromise is fair and reasonable as between the various classes; as between the various sub-groups within each class; and as between the members within each sub-group.
I am therefore satisfied that the Compromise is “for the benefit of the absent persons” and am prepared to approve it.
Approval of the Trustee’s Decision to Enter into the Deed of Compromise
The Trustee seeks an order, pursuant to rule 54.02 of the Supreme Court Rules, that the Court approve the Trustee’s decision to enter into the Deed of Compromise. That rule relevantly provides as follows:
54.02 Relief without general administration
(1)A proceeding may be brought for any relief which could be granted in an administration proceeding and a claim need not be made for the administration or execution under the direction of the Court of the estate or trust in respect of which the relief is sought.
(2) Without limiting paragraph (1), a proceeding may be brought for—
…
(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.
Thus, both in its inherent jurisdiction and under r.54.02(c) (i) the Court has the power to make an order “approving any … compromise … by … [a] trustee”.[25]
[25]See Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2004) 49 ACLR 1; McKinnon v Samuels [2000] VSC 393; Hornsby v Playoust (No.2) [2005] VSC 125 and Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66.
Counsel for the Trustee submitted, and I agree, that the authorities demonstrate that the Court’s role is not to consider the wisdom of the Trustee’s exercise of discretion but to grant the Trustee’s application for an order approving the Trustee’s agreement to the Compromise, if the Court is satisfied of the propriety of the application. That involves considering whether:
(a) the Trustee’s decision to agree to the Compromise was within power;
(b) there was any impropriety in the Trustee’s decision;
(c) the Trustee exercised its discretion in good faith; and(d) the Trustee gave fair consideration to the relevant issues.[26]
[26]Re Beloved Wilke’s Charity (1851) 42 ER 330, 333; Gisborne v Gisborne (1877) 2 App Cas 300, 307; Re Allen-Meyrick’s Will Trusts; Mangnall v Allen-Meyrick [1966] 1 WLR 499, 503; Re Green, deceased [1972] VR 848, 850 (Crockett J); McKinnon v Samuels [2000] VSC 393, [14] (Eames J); The Ansett Superannuation Plan case (2004) 49 ACSR 1, [50]-[53] and [71] (Goldberg J).
I am satisfied that clauses 4(b)(i) and 4(d)(i) of the First Schedule to the Trust Deed gave the Trustee the power to enter into the Deed of Compromise.
I am also satisfied that the process followed by the Trustee in establishing the Litigation Sub-Committee, participating in the mediation, reporting back to the Board of the Trustee, considering the prospects of success of the Company and the member representatives in the litigation should it proceed to trial, considering the detail of the design of the proposed compromise benefits, obtaining legal, actuarial, tax and Plan administration advice concerning the Compromise and deciding whether it was in the best interests of members to enter into the Deed of Compromise and the later Amending Deeds, was appropriate and conducive to the Trustee giving proper consideration to the relevant issues.
Finally, I am satisfied from the above evidence that, in deciding to enter into the Compromise, the Trustee exercised its discretion in good faith and gave fair and appropriate consideration to the relevant issues.
A further aspect, which was drawn to my attention by counsel for the Trustee, was that the power to amend the Plan was by rule 32 limited by any “alteration, addition or deletion not involving reduction in contributions” not detrimentally affecting the existing rights of contributors and beneficiaries. As counsel submitted, there were two categories of members to consider. First, there was the category of members who were affected by the Court orders. But that was not a detrimental effect because the Compromise is, as I have found, “for the benefit of” those members. The second category was non-affected members. The only way in which those persons might be detrimentally affected was if by reason of the Compromise the Company’s ability to put the Plan in sufficient funds to meet the defined benefits of the non-affected members was somehow jeopardised. There was no such risk in the circumstances of this case.
Next, counsel for the Trustee took me to some of the steps which were taken by it under the Deed of Compromise. One was notification to contributors. I have already expressed the view, in the context of the role played by the member representatives, that I am satisfied that appropriate notification was given and that any queries arising from the notification were satisfactorily dealt with. Another step taken by the Trustee which should be mentioned is that the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority were kept informed of the developments concerning the applications for approval of the Compromise. No objection was received from either regulator.
I am, therefore, prepared to approve the Trustee’s decision to enter into the Deed of Compromise.
The Construction Issue
As stated above, initially there was some disagreement between the parties over the correct construction of clause 5 of Part A of the Fourth Schedule to the Trust Deed. However, by the time of the mediation, it had been made clear that neither the Trustee nor the member representatives disputed the Company’s contention in relation to this issue. As part of the court orders pursuant to the Compromise, the parties sought a declaration as to the proper construction of the provision to formally resolve the issue. It was submitted that where there had been sufficient doubt about the issue on the part of the Trustee for it to be raised in the originating motion and where the parties had once disputed the correct construction of the clause, it was appropriate for the Court to make the declaration sought by consent to put the matter beyond doubt.
In the particular circumstances of these applications, and having considered the competing contentions about the correct construction of clause 5, I am prepared to make the declaration sought by the parties pursuant to the Compromise.
The Administration Issue
As the rectification orders will be made, the average salary basis will be confirmed as the correct basis for determining “final average pay”. This was the method used by the Trustee in administering the Plan so there is no need for the Trustee to re-do any calculations on this ground alone.
However, the Trustee’s method of administering the Plan changed slightly over time as a result of enhanced computer capacities. There was the initial method of using the highest average salary received during any period of 12 consecutive months in the ten years prior to retirement (“FAP 1”). Then the calculation was done on a monthly weighting and from January 1996 on a daily weighting (“FAP 1A”). All of these methods were variations of the average salary basis and had no connection with the annualised salary basis (“FAP 2”).
In the circumstances, the Trustee seeks an order approving of its past practice of administering the Plan by using FAP 1 and then FAP 1A. I am prepared to make such an order. I can see no reason why the Trustee should now re-do past calculations simply because the computer capacity has improved over time. The calculations that were made from time to time in the past were in accordance with the definition of “final average pay” contained in the rectified deeds. In any event, even if the calculations were re-done using FAP 1A on a daily weighting, the evidence suggests that most members would be no better off and the small minority that would be, would only be marginally better off.
Orders
Given the complicated nature of the issues discussed above, and for the sake of completeness, in the sense of having everything contained in the one document, I set out below the orders sought by the parties pursuant to the Compromise and which I propose to make:
1.The compromise set out in clause 2 of the Deed of Compromise dated 3 December 2009 between the plaintiff and the first to fourth defendants, as amended by the Amending Deed dated 14 May 2010 between the plaintiff and the first to fourth defendants (copies of which are exhibited to the Affidavit of Clinton Charles Hinchen sworn on 25 May 2010) is hereby approved and shall be binding on the absent persons who are represented by the first, second, third and fourth defendants, pursuant to rule 16.01(4) of Chapter I of the Supreme Court (General Civil Procedure) Rules 2005.
2.Pursuant to Order 54.02 of Chapter 1 of the Rules, the Court hereby approves the plaintiff (the Trustee) agreeing to the Compromise.
In relation to the construction of Clause 5 of Part A of the Fourth Schedule to the Trust Deed
3.It be declared that clause 5 of Part A of the Fourth Schedule to the Trust Deed of the Plan, as provided for under:
(a) the Deed dated 16 July 1982 made by the Company;
(b) the Deed dated 27 June 1990 made by the Company; and
(c)the Deed dated 1 September 1994 made by the Trustee and the Company,
is properly to be construed so that a lump sum benefit will only be payable if the sum of the amounts paid or payable as described in clause 5(b) is less than the benefit together with interest calculated pursuant to clause 5(a).
In relation to the Deed dated 27 June 1990:
4. The Deed dated 27 June 1990 made by the Company be rectified:
(a)by omitting from clause 1.1 of that Deed the definition of “final average pay” and inserting in its place:
“final average pay”, except where otherwise expressly provided, means the highest average annual rate of Actual Basic Pay received by the contributor during -
(a)in the case of a contributor who ceased service prior to 30th October 1970, any period of sixty consecutive months; or
(b)in the case of a contributor who ceased service on or after 30th October 1970 but prior to 1st January 1978, any period of thirty-six consecutive months; or
(c)in the case of a contributor who ceased service on or after 1st January 1978, any period of twelve consecutive months
during the period of ten years immediately preceding his or her normal retirement date or the date he or she actually ceases service, whichever date is the earlier.
(b)by omitting clause 5 of Part A of the Fourth Schedule, as inserted by clause 4 of that Deed, and inserting in its place a new clause 5 as follows:
Lump Sum Benefit Where No Surviving Spouse Or Dependent Children's Benefit - Death After Normal Retirement Date
5.If no benefit is payable under either Clauses 1, 1A, 2 or 2A of Part A of this Schedule, and if the former contributor dies after his or her normal retirement date, the difference (if any) between-
(a)the benefit to which he or she would have been entitled under Rule 18(a) if he or she had ceased service in accordance with that Rule on the date he or she retired, together with compound interest thereon up to the date of his or her death at approximately the rate of 4.5% per annum up to 1st April 1981 and thereafter at such rate as the Company may determine, and
(b)the amount of any pension payments made to him or her prior to his or her death and any amount paid or payable to him or her as a result of commutation,
shall be applied in accordance with Rule 14.
(c)by omitting clause 7 of Part A of the Fourth Schedule, as inserted by clause 4 of that Deed, and inserting in its place a new clause 7 as follows:
Minimum Benefit After Payment of All Spouse's and Dependent Children’s Pensions - Death After Normal Retirement Date
7.If a former contributor dies after the date he or she would have attained his or her normal retirement date and a benefit is or benefits are payable in respect of him or her under Clause 1, 1A, 2 or 2A of Part A of this Schedule and after the full and final payment of all benefits payable to him or her prior to his or her death and in respect of him or her after his or her death under this Deed, the total sum paid out of the Fund to provide all of the benefits payable to or in respect of him or her (“the total sum”), including any amount paid in commutation of a spouse's pension, is less than the minimum benefit, then the difference between the total sum and the minimum benefit shall be applied in accordance with Rule 14.
For the purposes only of this Clause 7, “the minimum benefit” means an amount equal to the benefit to which the former contributor would have been entitled under Rule 18(a) if he or she had ceased service in accordance with that Rule on the date he or she retired, together with compound interest thereon up to the date of his or her death at approximately the rate of 4.5% per annum up to 1st April 1981 and thereafter at such rate as the Company may determine.
(d)by inserting after clause 7 of Part A of the Fourth Schedule (in clause 4 of that Deed):
Leaving Service Benefit and Retirement Benefit
8.For purposes of calculating the benefits applicable under Clauses 5 and 7 of Part A of this Schedule:
(a)references to the benefit to which a former contributor would have been entitled under Rule 18(a) (“the leaving service benefit”) shall be taken to refer to the leaving service benefit to which a former contributor would have been entitled under Rule 18(a) as in force immediately prior to the Adoption Date; and
(b) references:
(i)in clause 5, to the amount of any pension payments made to a former contributor prior to his or her death and any amounts paid or payable to him or her as a result of commutation (“the retirement benefit”) shall be taken to refer to the retirement benefit which the former contributor received under, or would have received had the retirement benefit been calculated under, the Trust Deed as in force immediately prior to the Adoption Date; and
(ii)in clause 7, to the total sum paid out of the Fund to provide all of the benefits payable to or in respect of a former contributor, including any amount paid in commutation of a spouse's pension (“the total sum”) shall be taken to refer to the total sum received by or in respect of the former contributor under, or which would have been received by or in respect of the former contributor had the total sum been calculated under, the Trust Deed as in force immediately prior to the Adoption Date.
In relation to the Deed dated 1 September 1994:
5.The Deed dated 1 September 1994 made by the Trustee and the Company be rectified:
(a)by omitting from Rule 1(a) of the First Schedule the definition of “final average pay” and inserting in its place:
“final average pay”, except where otherwise expressly provided, means the highest average annual rate of Actual Basic Pay received by the contributor during -
(a)in the case of a contributor who ceased service prior to 30th October 1970, any period of sixty consecutive months; or
(b)in the case of a contributor who ceased service on or after 30th October 1970 but prior to 1st January 1978, any period of thirty-six consecutive months; or
(c)in the case of a contributor who ceased service on or after 1st January 1978, any period of twelve consecutive months
during the period of ten years immediately preceding his or her normal retirement date or the date he or she actually ceases service, whichever date is the earlier.
(b)by omitting clause 5 of Part A of the Fourth Schedule, and inserting in its place a new clause 5 as follows:
Lump Sum Benefit Where No Surviving Spouse or Dependent Children’s Benefit - Death After Normal Retirement Date
5.If no benefit is payable under either Clauses 1, 1A, 2 or 2A of Part A of this Schedule, and if the former contributor dies after his or her normal retirement date, the difference (if any) between-
(a)the benefit to which he or she would have been entitled under Rule 18(a) if he or she had ceased service in accordance with that Rule on the date he or she retired, together with compound interest thereon up to the date of his or her death at approximately the rate of 4.5% per annum up to 1st April 1981 and thereafter at such rate as the Company may determine, and
(b)the amount of any pension payments made to him or her prior to his or her death and any amount paid or payable to him or her as a result of commutation,
shall be applied in accordance with Rule 14.
(c)by omitting clause 7 of Part A of the Fourth Schedule, and inserting in its place a new clause 7 as follows:
Minimum Benefit After Payment of All Spouse's and Dependent Children’s Pensions - Death After Normal Retirement Date
7.If a former contributor dies after the date he or she would have attained his or her normal retirement date and a benefit is or benefits are payable in respect of him or her under Clause 1, 1A, 2 or 2A of Part A of this Schedule and after the full and final payment of all benefits payable to him or her prior to his or her death and in respect of him or her after his or her death under this Deed, the total sum paid out of the Fund to provide all of the benefits payable to or in respect of him or her (“the total sum”), including any amount paid in commutation of a spouse's pension, is less than the minimum benefit, then the difference between the total sum and the minimum benefit shall be applied in accordance with Rule 14.
For the purposes only of this Clause 7, “the minimum benefit” means an amount equal to the benefit to which the former contributor would have been entitled under Rule 18(a) if he or she had ceased service in accordance with that Rule on the date he or she retired, together with compound interest thereon up to the date of his or her death at approximately the rate of 4.5% per annum up to 1st April 1981 and thereafter at such rate as the Company may determine.
(d)by inserting after clause 7 of Part A of the Fourth Schedule:
Leaving Service Benefit and Retirement Benefit
8.For purposes of calculating the benefits applicable under Clauses 5 and 7 of Part A of this Schedule:
(a)references to the benefit to which a former contributor would have been entitled under Rule 18(a) (“the leaving service benefit”) shall be taken to refer to the leaving service benefit to which a former contributor would have been entitled under Rule 18(a) as in force immediately prior to the Adoption Date; and
(b) references:
(i)in clause 5, to the amount of any pension payments made to a former contributor prior to his or her death and any amounts paid or payable to him or her as a result of commutation (“the retirement benefit”) shall be taken to refer to the retirement benefit which the former contributor received under, or would have received had the retirement benefit been calculated under, the Trust Deed as in force immediately prior to the Adoption Date; and
(ii)in clause 7, to the total sum paid out of the Fund to provide all of the benefits payable to or in respect of a former contributor, including any amount paid in commutation of a spouse's pension (“the total sum”) shall be taken to refer to the total sum received by or in respect of the former contributor under, or which would have been received by or in respect of the former contributor had the total sum been calculated under, the Trust Deed as in force immediately prior to the Adoption Date.
In relation to the Deed dated 21 January 1999:
6.The Deed dated 21 January 1999 made by the Trustee and the Company be rectified by deleting the definition of “final average pay” in clause 2 of that Deed and inserting in its place:
“final average pay”, except where otherwise expressly provided, means the highest average annual rate of Actual Basic Pay received by the contributor during -
(a)in the case of a contributor who ceased service prior to 30th October 1970, any period of sixty consecutive months; or
(b)in the case of a contributor who ceased service on or after 30th October 1970 but prior to 1st January 1978, any period of thirty-six consecutive months; or
(c)in the case of a contributor who ceased service on or after 1st January 1978, any period of twelve consecutive months
during the period of ten years immediately preceding his or her Legislated Benefit Date or the date he or she actually ceases service, whichever date is the earlier.
In relation to the Deed dated 20 October 2000:
7.The Deed dated 20 October 2000 made by the Trustee and the Company be rectified by deleting the definition of “Final Average Pay or FAP” in Clause D2 of the Annexure to that Deed and inserting in its place:
Final Average Pay or FAP means in relation to a Class D Contributor, the highest average annual rate of Actual Basic Pay received by the Class D Contributor during any period of twelve consecutive months during the period of ten years immediately preceding his or her Prescribed Birthday or the date he or she actually ceases Service, if earlier.
In relation to the Deed dated 5 April 2002:
8.The Deed dated 5 April 2002 made by the Trustee and the Company be rectified by deleting paragraph (a) of the definition of “Final Average Pay or FAP” in Clause 8 of that Deed and inserting in its place:
(a)in relation to a Class D Contributor who is a Transferred Member, the highest average Annual Rate of Actual Basic Pay received by the Class D Contributor during any period of twelve consecutive months during the period of ten years immediately preceding his or her Prescribed Birthday or the date he or she actually ceases Service, if earlier; and
Method of calculation of “final average pay” and “Final Average Pay or FAP” in administering the Plan
9. The Trustee, in administering the Plan, may calculate:
(a)“final average pay”, as defined in Rule 1(a) of the First Schedule of the Trust Deed of the Plan, by using the highest amount of Actual Basic Pay received by a contributor during any period of twelve consecutive months during the ten year period immediately preceding his or her:
(i) Normal Retirement Date; and
(ii) Legislated Benefit Date;
(as applicable), or the date he or she actually ceases service, whichever date is earlier; and
(b)“Final Average Pay or FAP”, as defined in paragraph (a) of the definition in clause D2 of Division D, by using the highest amount of Actual Basic Pay received by a Division D Transferred Member (as defined in the Order of the Honourable Justice Whelan made in this proceeding on 18 December 2009) during any period of twelve consecutive months during the ten year period immediately preceding his or her Prescribed Birthday, or the date he or she actually ceases Service, if earlier.
Costs
10.The plaintiff’s costs of and incidental to this proceeding (including its costs of and incidental to the counterclaim) be paid out of the assets of the Plan.
11.The costs of the second, third and fourth defendants (including their costs of the counterclaim) be paid on a solicitor and client basis out of the assets of the Plan.
Disposal of the proceeding
12.The questions raised in the Third Further Amended Originating Motion are otherwise unnecessary to answer.
13.The first defendant's claims for the relief sought in the Second Further Amended Statement of Claim in relation to the Counterclaim are otherwise dismissed.
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