Flegeltaub v Telstra Super Pty Ltd
[2000] VSC 107
•3 April 2000
| SUPREME COURT OF VICTORIA |
| COMMERCIAL AND EQUITY DIVISION |
| Not Restricted |
No. 6380 of 1995
| GLENDA FLEGELTAUB | Plaintiff |
| V | |
| TELSTRA SUPER PTY LTD (ACN 007 422 522) | Defendant |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18, 21, 22, 24, 28 February 2000 | |
DATE OF JUDGMENT: | 3 April 2000 | |
CASE MAY BE CITED AS: | Flegeltaub v Telstra Super Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 107 | |
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Superannuation – trusts - total and permanent invalidity benefit – trustee's determination to refuse benefit – exercise of a discretionary power by trustee – whether and on what basis determination is reviewable – trustee's duty to act fairly – whether trustee addressed the correct question – whether power to determine claim effectively delegated – whether delegate's invalid determination ratified by trustee – whether question should be remitted to trustee for determination.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr P. Bingham | Maurice Blackburn Cashman |
| For the Defendant | Mr D. M. Maclean | Phillips Fox |
HIS HONOUR:
The plaintiff, Glenda Margaret Flegeltaub, was born in Mildura on 23 October 1956. When she was 18 she became an employee of Telecom Australia and remained in its employ for some 19 years, until 28 February 1994, when she was retired on the ground that she was suffering from an anxiety condition that rendered her unfit for work. On that date she was a member of the Telecom Superannuation Scheme of which the defendant, Telstra Super Pty Ltd ("the trustee") was the trustee. In this proceeding she challenges the decisions of the trustee made on 11 May 1994 and 13 December 1994 and again in December 1999 which denied her application for total and permanent invalidity benefits. She was therefore paid benefits on the basis of retirement.
The scheme came into operation only on 1 July 1990 under a trust deed made between Australian Telecommunications Corporation as principal employer and Telecom Super Pty Ltd as trustee. The Corporation carried on business as and was known as "Telecom".[1] I take it that Telecom Super Pty Ltd is the same company as the defendant but under an earlier name. The deed was adopted by the Telecom Board on 13 June 1990. It establishes an indefinitely continuing superannuation fund into which both members and the employer make contributions. The trustee holds the fund upon the trusts of the trust deed, including payment of fund expenses as defined[2] and benefits to members as provided for in Part 2.3. Part 1.11 empowers the trustee to insure against various risks including benefits payable to members or it may in certain circumstances act as a self-insurer. Notwithstanding that the fund is said to be indefinitely continuing, it may be closed by notice from the employer given in accordance with Part 1.21 or, under Part 1.13, where the employer ceases business without the appointment of a successor. Part 1.14 provides for the payment to the employer of any residue of the trust fund after all benefits have been paid and where there are no members or beneficiaries of the fund.
[1]Australian Telecommunications Corporation Act 1989, s.3.
[2]Clause 1.5.1.
According to the benefit statement issued to Mrs Flegeltaub as at 30 June 1993, her entitlements under the scheme as at that date were as follows. If she were retrenched she would receive a lump sum of $175,452.29. If she withdrew from employment, that is, she ceased for whatever reason to be an employee in circumstances where no benefit was payable under some other provision of the scheme, she would be entitled to the same amount, $175,452.29 but the majority of the sum, namely, $132,284.25 would be preserved in a superannuation fund or other approved arrangement until her "genuine retirement from the workforce after age 55, or earlier retirement due to permanent invalidity or death". In the event that she ceased to be an employee before the age of 60 years because of total and permanent invalidity she would receive a lump sum of $410,439.52. I mention these figures, not because they were disputed before me or because the precise amounts are important, but to show that the sums involved are very substantial.
The basis of the refusal or refusals was that her situation was not that of total and permanent invalidity within the meaning of that expression in the trust deed. It is there defined in cl. 2.1.2 as follows:
"'Total and Permanent Invalidity' means in relation to a Member disablement as a result of which –
(a)unless otherwise agreed between the Trustee and the Principal Employer from time to time either generally or in any particular case, the Member has been continuously absent from all active Work for a period of at least six months and has been required by the Employer to participate in a Rehabilitation Programme; and
(b)in the opinion of the Trustee after consideration of any information, evidence and advice provided to the Trustee by the Employer and any other information, evidence and advice the Trustee may consider relevant, the Member has ceased to be an Employee and is unlikely ever to engage in any gainful Work for which the Member is for the time being reasonably qualified by education, training or experience,
but –
(1)Total and Permanent Invalidity does not include disablement the existence or continuation of which, in the opinion of the Trustee after consideration of any information, evidence and advice provided to the Trustee by the Employer and any other information, evidence and advice as the Trustee may consider relevant, is attributable to a material extent to deliberate action or inaction by any person for the purpose of causing a benefit to become or to continue to be payable from the Fund, including without limitation what the Trustee considers to be an unreasonable refusal to submit to treatment; and
(2)a Member who is required by the Employer to participate in a Rehabilitation Programme will not be considered to have suffered Total and Permanent Invalidity unless the Member participates in that Programme to the satisfaction of the Trustee."
Mrs Flegeltaub seeks declarations that each of the refusals is void and that she is entitled to superannuation benefits on the basis of total and permanent invalidity. She also seeks an order that the trustee pay to her the sum to which she is entitled, alternatively, damages. There was, before me, some debate as to her present entitlement, even if successful, to an order for payment of the sum of damages. Counsel were in agreement that, if I were satisfied that the decisions were void, I might make a declaration to this effect. Counsel for Mrs Flegeltaub, however, contended that I might further make a declaration as to her entitlement and an order for payment. He proposed to lead medical evidence as to her present condition in support of this entitlement. Counsel for the trustee, on the other hand, submitted that I might in those circumstances only remit the matter to the trustee for it to consider the matter according to law. Accordingly such medical evidence would be irrelevant and inadmissible.
Having heard briefly what was put on each side of this controversy, I decided, with the concurrence of the parties, to approach the case in two stages.[3] First, I shall determine the issue whether any of the determinations of the trustee was good and receive such evidence as the parties wish to place before me in support of their submissions as to the course I should follow in the event that I should find them to be not good. If I found them to be not good, and if I were persuaded that it was proper for me to do so, I would in a second stage receive submissions for and against the plaintiff's contention that I should make a declaration as to her entitlement and receive evidence as to the amount payable to her.
[3]A similar course was adopted by Hodgson J in Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175
The first question for determination in the first stage is therefore whether the determinations of the trustee that Mrs Flegeltaub was not entitled to a total and permanent invalidity benefit are good. It is necessary now to identify precisely what is the basis for the attack on the decisions. In her statement of claim the plaintiff alleges that, in making each of the decisions, the trustee was subject to a duty:
(a) to give the plaintiff's application real and genuine consideration;
(b) not to act unreasonably, arbitrarily or oppressively;
(c) to consider the plaintiff's application responsibly;
(d) to have regard to all available relevant information;
(e) not to have regard to extraneous matters;
(f) to act with a fair consideration of the interests of the plaintiff.
The defence, at least insofar as it concerns the first and second determinations is in the following terms:
"(a)It admits that in making a determination on the Plaintiff's application it was required to exercise its discretion –
(i)In good faith
(ii)Upon real and genuine consideration
(iii)In accordance with the purposes for which the discretion was conferred and not for some ulterior purpose.
(b)Otherwise it does not admit the allegations.
(c)It says further that –
(i)The exercise of its discretion in making a determination on the Plaintiff's application was the exercise of a trust power
(ii)At all relevant times the Trust Deed provided that, except to the extent otherwise expressly provided in the Deed, the Defendant had in the exercise or non exercise or partial exercise of each power exercisable by the Defendant an absolute and uncontrolled discretion and is not bound to give any person a reason for or explanation of the exercise, non exercise or partial exercise of that power."
In the course of the trial the plaintiff was permitted to raise a further basis for attacking the first determination in May 1994. This was that the decision was in fact that of a committee which was not authorised under the trust deed to make it. The trustee asserted in response that the committee was in fact authorised to make the determination and that, in any event, its decision was ratified by the trustee at a meeting of its board of directors held on 22 June 1994. These contentions are contained in amendments to the statement of claim and the defence which were filed by leave on 24 February 2000 and 6 March 2000 respectively. I granted to the parties leave to present written submissions upon the issues raised by these amendments and they have done so. I have had regard to these written submissions.
With respect to the third determination, the trustee simply denies making the determination and denies the allegation that it was subject to the duty alleged.
The statement of claim then alleges that, in the case of each determination, the trustee's reasons for making the decision were not sound. This is simply denied.
The Trustee's Discretion
It was put on behalf of the trustee that its decision as to whether Mrs Flegeltaub's condition fell within the definition of total and permanent invalidity was that of a trustee of a discretionary trust and that its validity fell to be determined in accordance with the well established principles applicable to such decisions. The application of the definition, which is set out in paragraph [4] above, requires the trustee, at at least two stages, to form an opinion as to the existence of certain facts.
Part 1.4 of the deed deals with the powers of the trustee.
"1.4.1 Absolute Discretions
Except to the extent otherwise expressly provided in this Deed, the Trustee has in the exercise or non-exercise or partial exercise of each Power exercisable by the Trustee an absolute and uncontrolled discretion and is not bound to give any person a reason for or explanation of the exercise, non-exercise or partial exercise of that Power. The Powers conferred on the Trustee by this Deed are additional to and not in substitution for the Powers exercisable by the Trustee at law.
1.4.2 Powers of Trustee
Except to the extent expressly provided otherwise elsewhere in this Deed, the Trustee has complete management and control of all proceedings, matters and things in connection with the Fund and may do all acts and things which the Trustee may consider necessary, desirable or expedient for the proper administration, maintenance and preservation of the Fund and in the exercise of the Powers and the performance of the duties of the Trustee, including without limitation the following specific powers, namely –
…
(f) acting on advice:
To act on the advice or opinion of a Qualified Adviser (whether or not that advice or opinion is obtained by the Trustee) in relation to any matter or question without being liable in connection with anything done or omitted to be done by the Trustee or a delegate or representative of the Trustee in good faith based on that advice or opinion; …
"Power" is defined in clause 1.1.1 in these terms:
"'Power' means a power, right, discretion or authority of any nature and howsoever arising (including without limitation a power which a person has a duty to exercise and a power of approval) and, wherever a Power is exercisable by a person, the relevant provision of this Deed must be read as if the words 'at any time and from time to time' were added to that provision."
I take as my starting point the judgment of McGarvie J in Karger v Paul[4] which has had a large influence on judicial opinion since it was given in 1982.[5] This was not a superannuation case; it was a case where a trustee under a will was empowered to pay the trust funds absolutely to the life tenant. It was the decision to make such a payment which was under review. His Honour concluded that the exercise of discretion of a trustee of a discretionary trust will not be reviewed by the court except where it is demonstrated that the discretion has been exercised otherwise than in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred.[6] In short, it is no function of the court to enter upon the question whether the decision was correct or reasonable. Likewise, provided the trustee has complied with its threefold duty, the court is not concerned to examine how the discretion was exercised.
"As part of the process of, and solely for the purpose of, ascertaining whether there has been any such failure, it is relevant to look at evidence of the inquiries which were made by the trustees, the information they had and the reasons for, and manner of, their exercising their discretion. However, it is not open to the Court to look at those things for the independent purpose of impugning the exercise of discretion on the grounds that their inquiries, information or reasons or the manner of exercise of the discretion, fell short of what was appropriate and sufficient."[7]
[4][1984] VR 161.
[5]Esso Australia Ltd v Australian Petroleum Agents' and Distributors' Association (Unreported, SC (Vic), Hayne J, 5 October 1993, BC9300733) at pp.18-20; Asea Brown Boveri Superannuation Fund No.1 Pty Ltd v Asea Brown Boveri Pty Ltd [1999] 1 VR 144 at 155, per Beach J.
[6][1984] VR 161 at 164.
[7][1994] VR 161 at 164.
The exception to this principle is the case where the trustee gives reasons for the decision. In such a case, the validity of those reasons is examinable.[8] His Honour also concluded that a trustee, in the exercise of discretionary power, is not required to observe the rules of natural justice.[9] This analysis was accepted without discussion or qualification by McLelland J in Rapa v Patience[10] and the two decisions have been followed generally in superannuation cases where an opinion-based decision of a trustee to refuse a benefit has been the subject of attack.[11] Counsel for the trustee before me relied on these cases, arguing that the decision of his client might be disturbed only if I was satisfied on the material before me that one of the threefold requirements described by McGarvie J was found not to exist. He submitted that this was the law which must be applied in this case. Accordingly, since it could not be said that, on the material before the trustee, its decision to refuse the benefit was one that no reasonable person could come to, the plaintiff must fail.[12]
[8][1984] VR 161 at 166.
[9][1984] VR 161 at 166.
[10]Unreported, SC (NSW), 4 April 1985, BC8500888.
[11]Meat Industry Employees Superannuation Fund Pty Ltd v Petrucelli (Unreported SC (Vic), Nathan J, 28 February 1992, BC9200730); Esso Australia Ltd v Australian Petroleum Agents' and Distributors Association (Unreported SC (Vic), Hayne J, 5 October 1993, BC9300733) at p. 18; Vidovic v Email Superannuation Pty Ltd (Unreported SC (NSW), Bryson J, 3 March 1995, BC9504297); Neskovski v Rogers (Unreported, SC (NSW), McLelland CJ, 12 May 1995, BC9504722); Tonkin v Western Mining Corp Ltd (Unreported SC (WA), Scott J, 31 May 1996, BC9602306); Muinos v Johnson and Johnson Retirement Benefits Ltd (Unreported SC (NSW), McClelland CJ, 5 December 1996, BC9605916); Tonkin v Western Mining Corporation Ltd (No 3) (Unreported, SC (WA), Scott J, 19 June 1997, BC9702687); Minehan v AGL Employees Superannuation Pty Ltd (1998) 134 ACTR 1; Asea Brown Boveri Superannuation Fund No.1 Pty Ltd v Asea Brown Boveri Pty Ltd [1999] 1 VR 144.
[12]Maciejewski v Telstra Super Pty Ltd [1999] NSWSC 341 at [13], per Windeyer J.
In Vidovic v Email Superannuation Pty Ltd[13] Bryson J made the following observation:
"It is a marked anomaly to use mechanisms drawn from fields of law remote from employment and relating to trusts for bounty or charity to administer important entitlements in an employment relationship. I find it difficult to understand why the entrenchment of such important rights against review is so usual, and why this kind of arrangement is so commonly found acceptable to employees in view of the economic significance of such decisions and the economic function of superannuation, not well represented in the terms of the documents, as a contracted employment benefit for which value is given. These anomalies appear particularly clearly where, as in this case, the fund out of which benefits are paid is contributory and an employee claiming benefits is claiming to be paid, at least in part, in his own coin. In an arrangement with a contractual character in which value is given in the expectation that a benefit will be available in stated circumstances, a construction in which one party has an entire and unreviewable power to determine whether that party will pay a sum of money to the other or retain it in its own funds has an element of absurdity. Language which appears to produce such a result serves to demonstrate the strength of the expectation of all concerned that the exercise of the power will be honest and reasonable. It is only on that expectation that the transaction could, as a practical matter, be expected to take place at all, and there would have to be an entirely explicit exclusion of such an expectation before language literally capable of excluding it should be given that construction. The context of the employment relationship has an influence which it is impossible to exclude from judicial scrutiny and perceptions of reasonableness of decisions under superannuation deeds."
His Honour had expressed himself in similar terms some seven years earlier in Dillon v Burns Philp Finance Ltd.[14] These concerns have been more recently echoed in the Supreme Court of the Australian Capital Territory by Gallop ACJ.[15] I respectfully agree with their Honours. It may have been considerations such as these which led to the passing of the Superannuation (Resolution of Complaints) Act 1993 (Commonwealth) and the establishment under that Act of the Superannuation Complaints Tribunal which may review decisions of trustees on the ground that they are unfair or unreasonable. This legislation, however, came into force too late to assist Mrs Flegeltaub.
[13]Unreported, SC (NSW), 3 March 1995, BC9504297 at p.11.
[14]Unreported, SC (NSW), 20 July 1988, BC 8801719 at pp.15- 16.
[15]Minehan v AGL Employees Superannuation Pty Ltd (1998) 134 ACTR 1 at [55].
I mentioned at the outset of this discussion that I take Karger v Paul as my starting point. Notwithstanding some encouragement to the contrary by counsel for Mrs Flegeltaub, I see myself as bound by that decision and those which apply it to the decisions of superannuation trustees and I will follow them. Accordingly, I will not set aside the determination of the trustee in this case unless it appears that it was made otherwise than in good faith, upon due and proper consideration and for the purpose for which the discretion was conferred or, where the absence of one or more of these requirements is to be inferred from the fact that the decision of the trustee is one which a trustee properly acting could not reasonably have reached on the material before it.[16] The cases, however, demonstrate that these principles must be applied in the context in which the decision is made. In the present case, relevant considerations include the fact that the decision of the trustee is not one as to whether and how the trust fund is to be distributed; it is whether the member seeking benefits falls within the definition of total and permanent invalidity so that an entitlement to benefit arises under the deed. The discretion conferred on the trustee is conferred upon it to enable this question to be determined. They include the fact that the member, as a contributor to a scheme which is established as part of the terms of her employment, is entitled not to be treated as a mere suppliant or a volunteer.[17] Her application must be considered honestly, freely and with integrity in the light of the material before the trustee.[18] Where, as here, the trustee has the added obligation to determine what information, evidence and advice is relevant for the task, this obligation too must also be discharged in the same way. It is clear that the trustee is not bound by the rules of natural justice,[19] but the circumstances of the case may demand, as a matter of fairness, that, on a particular matter, the position of the applicant be sought so that a proper decision can be made on that matter.[20] This may arise because there is an apparently adverse matter of fact which is peculiarly within the knowledge of the applicant or for which the applicant may reasonably be expected to have an explanation. It may involve a disclosure to the applicant or to her representative of the adverse material.[21] It may, as the trustee in the present case apparently recognised, require the trustee to invite the applicant to bring forward material upon a particular matter and, further for the purpose, to disclose to her what is the matter which is a potential difficulty in the way of her application. Failure to pursue such a matter may lead to the conclusion that there is a lack of genuine consideration and a lack of good faith in the decision-making process.[22] I do not in this way presume to lay down any hard and fast rules. The heavy responsibility imposed by the deed upon the trustee must be seen in the light of the circumstances of the particular case.
[16]Maciejewski v Telstra Super Pty Ltd [1999] NSWSC 341 at [13] - [14], per Windeyer J; Tonkin v Western Mining Corporation Ltd (unreported SC (WA), Scott J, 31 May 1996, BC9602306) at p.10
[17]Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 at 1610, per Warner J.
[18]Re Beloved Wilkes' Charity (1851) 3 Mac & G 440; 42 ER 330 at 333, per Lord Truro LC.
[19]Karger v Paul [1984] VR 161 at 166; Pope v Lawler (1996) 41 ALD 127 at 134.
[20]Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601; Karger v Paul [1984] VR 161 at 178.
[21]Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601; Minehan v AGL Employees Superannuation Pty Ltd (1998) 134 ACTR 1.
[22] Karger v Paul [1984] VR 161 at 178.
Total and Permanent Invalidity
The definition which I have set out in paragraph [4] above, is expressed in terms of an unspecified and undefined disablement which has a number of consequences which are set out in paragraphs (a) and (b). The first consequence, which is contained in paragraph (a) is a continuous absence from all active work for a period of six months. "Work" is defined in broad terms in cl. 1.1.1. This aspect of the definition of total and permanent invalidity was conceded before me and seems not to have caused a difficulty for the trustee. The second consequence of the disability, also found in paragraph (a), that Telecom had required the member to participate in a Rehabilitation Programme and that she had done so, was likewise not seen as a difficulty before the trustee or before me. While it is true that she was not required to participate in such a program, this was because Telecom, on medical advice, concluded that her disability would not be alleviated by such participation. I therefore put paragraph (a) to one side.
The third and fourth consequences which must flow from the disability in order that it fall within the definition of total and permanent invalidity are found in paragraph (b). This provision requires the trustee to form an opinion as to their existence and this opinion is to be formed by the trustee after consideration of the information, evidence and advice provided to it by Telecom or which it may consider relevant. It will be noted, first, that the deed imposes no obligation on the member, or even a right,[23] to provide any information, evidence or advice and second, that the trustee must form a view as to the relevance of this material. The two matters which are to exercise the mind of the trustee in this way are whether, as a result of the disability, the member has ceased to be an employee and, second, whether the member, as a result of the disability, is "unlikely ever to engage in any gainful Work for which the Member is for the time being reasonably qualified by education, training or experience". The first of these matters appears not to have caused any difficulty for the trustee, for it was clear that Mrs Flegeltaub was retired by Telecom as a consequence of her disability.
[23]Unless this be implicit from the fact that the applicant bears the onus of proof: Tonkin v Western Mining Corporation Ltd (unreported SC (WA), Scott J, 31 May 1996, BC9602306) at p.13.
The fourth consequence of the disability was the subject of considerable debate before me. The trustee is required to form an opinion as to the future – as to whether it was unlikely, that is, improbable,[24] that Mrs Flegeltaub would ever engage in the specified work. Counsel for the trustee submitted that there was material before the trustee that the incapacity of Mrs Flegeltaub was not permanent in this sense. Dr Stern and Dr Watson both opined that, if she took the psychotropic medication which they mentioned, she had a good prospect of improvement to the point where she might work again. Counsel for Mrs Flegeltaub argued that these opinions were beside the point. All the doctors agreed that she was presently unable to work and that, so long as she took no medication, this condition would continue indefinitely because of her permanent anxiety condition. Reading the definition in the deed literally, the prospect of her returning to work, then, depended upon her maintaining indefinitely her resistance to the medication. There was nothing before the trustee or before me to suggest that she would change her mind on this point. So argued counsel for Mrs Flegeltaub.
[24]White v Board of Trustees [1997] 2 Qd R 659 at 672, per White J.
In Dragojlovic v The Director-General of Social Security[25], Smithers J was required to consider whether the Director-General was entitled to cancel the applicant's invalid pension because he unreasonably refused to submit to surgery which might reduce his incapacity to work. While the case turned upon the provisions of the Social Security Act 1947, his Honour considered the question whether the applicant in these circumstances could be considered permanently incapacitated. He approached the question this way:
"Whether the fact, namely permanent incapacity for work, is established is to be decided by reference, inter alia, to the availability of remedial treatment. A disability which can be relieved by treatment which is reasonably available is not permanent. But where the claimant is a person who actually cannot, for fear, or religious beliefs, for example, or for some other reason of a genuinely compulsive nature, accept that treatment, the question is whether his disability is one which can, in fact, be relieved.
…
Of course, it has been felt to be unsatisfactory that a person who refuses to undergo treatment which would probably cure his incapacity and which it would be reasonable, objectively regarded, for him to undergo, should qualify for a pension. Common sense suggests that it would be unfair that the community should pay a pension to such a person. As a result, it has been thought proper to import, by analogy, the notion that incapacity which is curable by the adoption of measures which it is objectively reasonable to take, is not permanent incapacity.
…
In any case in which treatment is refused the question for the respondent or the Tribunal is not whether the refusal is reasonable or otherwise, but whether, on the probabilities, the refusal is genuinely based on grounds which, in fact, compel the person concerned, acting honestly, so to refuse. Questions involving the reality of alleged reasons for action and involving their bona fides are commonly encountered in the course of the judicial process. When they are encountered, in the context of a refusal to undergo treatment for a disability, the reasonableness of the treatment in contemplation is, of course, a factor of importance. It is a question, when deciding if, in fact, a person is permanently incapacitated for work. The question ought to be resolved on the basis that a person is so permanently incapacitated when his incapacity is such that it can only be relieved by treatment of such a nature that in the opinion of the fact finding Tribunal he cannot undergo it. A person who is genuinely constrained by religion or fear which he cannot overcome is no doubt such a person. But there may well be cases in which on other genuine grounds it would not be reasonable to expect a claimant for a pension or a pensioner to undergo particular treatment of a remedial nature. Dealing with the plain question of fact, with respect to a man who can be cured only by treatment objectively reasonable but actually not available to him because of fear or other genuine reason, a Tribunal would, in my opinion, find that that man was permanently incapacitated for work within the meaning of s. 23 of the Act.[26]
[25](1984) 1 FCR 301.
[26](1984) 1 FCR 301 at 304, 305.
Smithers J[27] quoted with approval the observation of Deputy President Todd in Re Korovesis and Director-General of Social Security[28] that the question of permanent incapacity before him did not arise in the context of a claim for compensation or damage for wrongdoing in which case there may be a requirement for mitigation of damage. The Social Security Act is concerned with the objective provision of a minimum level of support for a person in crisis. Such an observation applies with even more force in a superannuation case, where the member and the employer have each made contributions to the scheme in the expectation that, in the event of a permanent inability to work, financial support would be provided to the member. Furthermore, it could hardly be contemplated that an obdurate refusal by a member to accept reasonable medical treatment should be rewarded by an increased benefit. Counsel for the trustee urged me to adopt the conclusion of Smithers J in the Dragojlovic case as to the implication with respect to permanency in paragraph (a) of the definition. He submitted that, where a person refuses to undergo medical treatment which has the probability of improving their medical condition to the point where return to work is not unlikely, this removes the element of permanency from the incapacity, unless it be shown that the refusal is genuinely based on grounds which compel the applicant so to refuse. For the reasons given by his Honour, there is much to be said for this.
[27](1984) 1 FCR 301 at 303.
[28](1983) 6 ALD 244 at 249-250.
In the case of the present superannuation scheme, however, the deed has made specific reference to this problem and has catered for it in proviso (1). There, it is provided that a disability which might otherwise satisfy the definition of total and permanent invalidity does not do so in a number of circumstances. The proviso generally covers the situation where the disablement of the applicant is the result of the deliberate act or failure to act, performed for the purpose of her obtaining the benefit. In particular, it provides for the case where this act takes the form of an unreasonable refusal by her to submit to treatment. Such a refusal may be relied on as a basis for invoking proviso (1) where the trustee forms the opinion that the refusal is unreasonable and, further, where it forms the opinion that this unreasonable refusal was made as a deliberate act for the purpose of causing the total and permanent invalidity benefit to be paid. It is difficult to imagine a refusal of this kind which would not be included in the more general class of refusal described by Smithers J as implicit in the requirement of permanency in paragraph (a). To my mind, the two cannot stand together. In accordance with ordinary canons of construction, I conclude that the implied must yield to the express term; the general basis for denial of benefit on the grounds of refusal must yield to the specific.
I conclude that, as a matter of construction of this definition, a member's genuine refusal of treatment, whether it be reasonable or not, has no relevance to the question of the permanency of the disability, except insofar as it brings proviso (1) into operation. This may be seen as an attempt on the part of the parties to the deed to strike a balance between an understandable desire to refuse benefits to a malingerer, on the one hand, and an equally understandable reluctance to impose treatment on a member who for genuine, albeit misguided, reasons refuses to submit to it or to deny her benefits for such a refusal. In the case of a psychiatric disability such an imposition may, as Dr DW Stewart thought, be positively harmful. Finally, it will be noted that the matters which, under proviso (1), remove the disability from the definition are all matters which amount to deliberate action or inaction for the purpose of causing a benefit to be payable or to continue to be payable. This requirement of deliberateness is a feature of the specified refusal of treatment. What is required to cause proviso (1) to operate is that an opinion be formed that the member unreasonably refuses treatment deliberately for the specified purpose. It is not sufficient that an entitlement to benefit arises as an incidental consequence of the unreasonable refusal. The trustee must, therefore, on the material before it, form an opinion on the question whether the member is unreasonably refusing medical treatment and that this is done deliberately for the purpose of obtaining or continuing to receive benefits under the scheme.
The May 1994 Determination
The Facts
It seems that Mrs Flegeltaub was a satisfactory employee of Telecom. Prior to her retirement she had been promoted to the position of Administrative Officer Grade 6. Her employment records show that she took maternity leave in 1989 and again late in 1991, upon the birth of her fourth child. This leave was followed by recreation leave to 19 February 1992 and, from then, up to the end of November 1993 she was more or less continually absent on sick leave because of an anxiety depressive illness. During this period she was examined by a number of doctors. Dr D.I. Stewart, her own general practitioner, referred her to Dr D.W. Stewart a psychiatrist whom she saw regularly until November 1992. Her employer referred her to Commonwealth Health Officers, Dr P.M. Loewy, in June 1992 and Dr M.A. Henderson in July 1993. Dr Henderson, in turn, referred her to Dr Stephen Stern, a psychiatrist, who saw her in August 1993. These doctors recommended to Telecom that she would not be able to return to work and that she be retired on the grounds of invalidity. On 30 November 1993, Telecom advised her of this. In this letter, too, Telecom told her that a claim for total and permanent invalidity had been lodged on her behalf with the Telecom Superannuation Scheme for assessment. It commented that its decision to retire her on the grounds of invalidity did not mean that the claim for benefits would be accepted; this was a matter for the trustee.
Her application for benefits was on 11 May 1994 considered and denied by the trustee's Level 2 Benefits Committee. The events between the submission of her application and this denial six months later may be summarised. The trustee obtained from Telecom the five medical reports which it had obtained: from Dr DW Stewart dated 28 September 1993; from Dr Henderson dated 28 July 1993 and 4 October 1993; from Dr Loewy dated 23 June 1992; and from Dr Stern dated 19 August 1993. There was no evidence to suggest that Mrs Flegeltaub herself had copies of any of these reports or that she was aware of their content.
The thrust of these reports was that Mrs Flegeltaub had had a long history of anxiety and depression. Dr Stern diagnosed her condition as a chronic, severe anxiety disorder with associated phobias and obsessions and Dr DW Stewart as a generalised anxiety disorder. Dr Stewart refers to the presence of depressive "symptoms" which had by November 1992 been improved to the point that she was able to cease anti-depressant drugs. Dr Henderson in his July 1993 report says that "she no longer attends her psychiatrist. She says that her depression has improved and she does not see the need to continue attending". Dr Stern who saw her in August 1993 wrote "She stopped attending psychiatrist, Dr Stewart, in early 1993. She takes no medication. She said she would not take any because she had a fear of dependency".
The medical reports had, of course, been obtained by Telecom as her employer in order to assess her entitlement to sick leave and, later, to assess whether she should be retired on the ground of invalidity. The opinion of the three doctors who saw her in 1993 was unanimous on this matter. Dr Stern in his report of 19 August 1993 said:
"There has been no improvement over the past nine months. Her condition is permanent. Her psychiatric prognosis is guarded because she refuses to take medication. She will suffer from continuing severe anxiety symptoms.
I now feel that she is totally and permanently incapacitated for any employment."
Dr Stewart's opinion was expressed in these terms in his report of 28 September 1993:
"In my opinion Mrs Flegeltaub's condition is chronic and permanent. I believe she meets the requirements for total and permanent invalidity and she is unlikely ever to work again in any job that she is reasonably qualified to do by education, training or experience. She is in fact barely able to cope with the duties of managing her home and children."
Dr Henderson noted these opinions in his report of 4 October 1993 and added his own:
"Dr Stern and Dr Stewart are now in agreement that Mrs Flegeltaub is totally and permanently incapacitated for employment in any capacity.
It is considered that she is predisposed to anxiety as a result of her obsessional personality. Aggravating factors have been the deaths of her brother and father in 1991, and increase in the complexity and responsibility of her job with Telecom.
She is now barely able to cope with her family and the demands of life in general.
It is therefore recommended that, under the provisions of the Superannuation Act, Mrs Flegeltaub be retired as medically unfit."
In January 1994 the trustee arranged for her to be seen by another psychiatrist, Dr Lester Walton, on 25 January 1994 and received his report dated 1 February 1994. It appears from this report that Dr Walton had copies of all the Telecom medical reports. It contains his opinion that she requires "a trial of mood-stabilising medication as was suggested by her former treating psychiatrist". Dr Walton then opines that "there is at least a 50% likelihood that such treatment would at least produce some improvement". He continues as follows:
"The most obvious factor which may hinder this woman undergoing successful treatment is that she simply refuses to comply with it. Apparently she is afraid that she may become dependent upon the medication but that is an irrational fear, the range of medications which would be appropriate in treating her condition not leading to drug dependency."
Having referred to the definition of total and permanent invalidity in the trust deed with which he had been provided, Dr Walton concluded:
"In relation to the definition of total and permanent invalidity, I note that the worker has been continuously absent from all active work for well in excess of six months excluding the periods of absence in relation to maternity and recreational leave. While this worker, in my opinion, is currently properly described as totally incapacitated (in the absence of treatment), I would not describe her as permanently incapacitated. Her condition remains potentially reversible. Furthermore, I note the qualification that a worker cannot be recognised as suffering from total and permanent invalidity in the face of the trustee's judgement that there has been an unreasonable refusal to submit to treatment and my advice is that this woman's refusal to undergo treatment is unreasonable. In addition, it should be noted that this worker has not participated in any rehabilitation programme but as far as I am aware that has not been stipulated by her employer. It is certainly indicated in medical grounds."
Dr Walton concluded his report with the following statement:
"This woman described her future prospects as 'I'm quite happy just to stay at home'. She indicated that she did not wish to simply resign because this would create financial problems for the family. I took the liberty of indicating to her that there may be some difficulties in her being awarded invalidity status and she stated 'if there is no Super I'd have to work somewhere but it would kill me'.
I explored that question further with Mrs. Flegeltaub and it does appear that she is actually afraid of dying in a similar fashion to her brother. This is an irrational fear as she has been investigated in relation to cardiovascular disease and reassured in that regard but it seems to be her perception that she would be unable to control herself in relation to working excessively, that this would cause stress and place her at risk. Alternatively, this woman speaks of her fears of returning to work because 'I'd be a real failure'.
I indicated to Mrs. Flegeltaub that she was suffering from a potentially treatable condition and that with the assistance of an occupational rehabilitation consultant she should be able to alter her work style. Quite simply she was not prepared to entertain such propositions.
At present this woman is suffering from a diagnosable anxiety disorder on an underlying obsessional personality. It does appear that her condition, in particular the depressive component, has improved but nevertheless she is suffering from significant psychiatric impairment which would disable her for employment at present. However, she is a suitable candidate for treatment and rehabilitation, options which are yet to be fully explored."
Dr Walton's observation evidently raised some concern in the minds of those who were investigating the application. Wendy Schneider, the trustee's Benefits Administrator, who had the conduct of the file, wrote a letter dated 7 February 1994 to Dr Walton seeking clarification of his reference to "unreasonable refusal". His response is dated two days later. I shall set it out in full, omitting formal parts.
"I apologise for any confusion in the previous opinion I offered that 'the most obvious factor which may hinder this woman undergoing successful treatment is that she simply refused to comply with it. Apparently she is afraid she may become dependent upon the medication which is an irrational fear', which upon re-reading I can easily see is ambiguous.
While I believe this woman is properly described as exhibiting anxiety of clinical degree, she does not have a specific phobia of psychotropic medication as a direct response of that disorder. Rather, she exhibits an apprehension, not at all uncommon in persons unfamiliar with psychotropic medications, that they may become drug-dependent if those medications are prescribed for them. Clearly that issue was not raised by her with her treating psychiatrist, he apparently being under the mistaken impression that she was taking the medication. I discussed the issue with her myself with a view to encouraging her towards more active treatment, reassuring her that medications could be safely prescribed. Her anxiety condition does not incapacitate her for understanding that type of information. I believe her refusal to undergo proper treatment is a matter of personal choice for her, a reflection of attitude rather than psychiatric disorder. Thus, her concern about receiving medication may be described as an 'irrational fear' but in the ordinary sense of the meaning of those words not as psychiatric terms.
Against that, it may well be Mrs Flegeltaub's own view that her refusal to undergo such treatment is reasonable, for example, if she did not believe the reassurance I offered her, however, objectively I doubt if that can be described as reasonable."
Having received this information Ms Schneider wrote to Dr Stern on 17 February and Dr D.W. Stewart on 25 February, enclosing a copy of the scheme definition of total and permanent invalidity and addressing to them three questions. These questions and their responses are as follows:
Question 1.
The likelihood of her engaging in any gainful work for which she is currently reasonably qualified by education, training or experience if she DOES NOT submit to treatment.
Response (Stern):
"It is very unlikely that she will be able to engage in any gainful work for which she is currently reasonably qualified by education, training or experience if she does not submit to psychiatric treatment."
Response (Stewart):
"I notice in correspondence from MA Henderson on 31st August 1993 the comment 'I understand that Mrs Flegeltaub has chosen to cease psychiatric treatment and has not seen you for some months'.
It needs to be made clear that she terminated treatment because I advised her to do so. Further I advised her to stop treatment because I did not consider that continuing psychotherapy would result in any significant gain for her. It will be seen from my report that at the time of ceasing treatment she was enjoying a quality of well being that she had not had for some years. Another reason for my advising her to stop treatment is that in my experience people with severe obsessional personalities are rarely relieved of their obsessional symptoms through psychotherapy.
I consider that it would be very anti-therapeutic for her if she was ever required to 'submit to treatment'. However even though she would be better off as far as her psychological health goes by not submitting to treatment she still would not be likely to engage in any gainful work for which she is currently reasonably qualified by education, training or experience in the future."
Question 2:
The likelihood of her engaging in any gainful work for which she is currently reasonably qualified by education, training or experience if SHE DOES submit to treatment.
Response (Stern):
"If she does submit to psychiatric treatment with medication, the likelihood of her engaging in any gainful work for which she is currently reasonably qualified by education, training or experience is fairly good."
Response (Stewart):
"In my opinion if she submits to treatment there would be little likelihood of her engaging in any gainful work. If her treatment was voluntary my answer would still remain the same, that is, 'no likelihood'."
Question 3:
Do you consider her refusal to submit to treatment reasonable or unreasonable.
Response (Stern):
"I consider her refusal to submit to proper psychiatric treatment to be unreasonable."
Response (Stewart):
No response.
In the meantime, Mrs Flegeltaub telephoned the trustee on 21 February to find out the reason for the delay in her application. She was told, incorrectly, that the trustee had gone to two more doctors "to make her claim black or white". In fact the trustee had referred the matter to one more doctor only. On 18 April her application was on the agenda of the trustee's Level 2 Benefits Committee and it was deferred. On the same day Ms Schneider wrote to Mrs Flegeltaub a letter which attracted a good deal of attention before me. I shall therefore set it out in full.
"I refer to your application for a Total and Permanent Invalidity benefit from the Telecom Superannuation Scheme.
The trustee of the Scheme will be basing its decision on the attached Trust Deed definition of Total and Permanent Invalidity.
The term 'Work' used in the definition is also defined on the attached sheet and you will note that this does not exclude work outside Telecom Australia, nor does it exclude work outside your present geographical location.
As part of our assessment procedure we have obtained an up to date report from Dr Doug Stewart, Dr Lester Walton and Dr Stephen Stern. We have also viewed previous reports from Drs Stewart and Stern and the Australian Health Service.
Based on the medical evidence we have received here so far there appears to be insufficient evidence in support of your claim, bearing in mind the Trust Deed definitions which apply to the assessment of invalidity claims. If you feel there is any information we may be lacking which would support your claim could you please forward it to this office.
It is proposed that your claim be put to the Trustee for a decision on 11 May, 1994, therefore any information you wish to provide must be received at this office by 9 May, 1994.
If you have any queries, please do not hesitate to contact me."
This letter was criticised on the ground that it was uninformative and even misleading. I make no criticism of the trustee for informing the applicant that her application was facing difficulties and for inviting her to submit more material. Indeed, this was a very proper course for it to follow in the circumstances. The criticism which I do make is that the letter does not go far enough; it does nothing to tell the applicant what is the precise nature of the obstacle which her application was facing. This meant that she was unable to make any meaningful response. It meant, too, that the trustee's decision was not made with the benefit of her input on the question of her refusal of medication and the reasons for this. The difficulty of her position is demonstrated by her telephone response on 6 May which was recorded by an employee of the trustee as follows:
"She said that she did not wish to submit any more information to assist the Trustee with the consideration of her claim.
She also said that it would be difficult to submit any more information as she did not know what we already had. She stated that she was going to her solicitor and that he would know how to get copies of information we had 'when the time comes'.
She stated that she believed denial of her claim was a foregone conclusion."
The last comment may have been caused by her medical condition or by the sense of frustration she was feeling.
The application was considered and rejected by the trustee's Level 2 Benefits Committee at its meeting on 11 May 1994. The minute of this meeting records, without more, that her claim for total and permanent invalidity was denied.
It is apparent from the summary prepared for the committee that the reason for her not taking medication was a matter of importance. Dr Walton had formed the view that Mrs Flegeltaub had been prescribed psychotropic medication by Dr DW Stewart and that he believed she had been taking it, whereas in fact she did not. Dr Walton said that she told him she would not take the medication for fear of dependency. What Dr Stewart wrote in fact was that she had been able to cease taking medication in late 1992 because she was then considerably improved. He said that he saw her thereafter, being last reviewed on 5 April 1993. This improvement in her condition was, of course, over 12 months before her employment terminated. There is no suggestion in Dr Stewart's report that she was still being prescribed medication or that he believed that she was taking it. Her apparent statement to Dr Walton in February 1994 that she never took the medication may be less significant when it is seen against the fact that her treating psychiatrist had not seen the need to prescribe it for her for some 15 months. Dr Stewart's version of this may well have resolved this apparent inconsistency. The conclusion of Dr Walton was that she would benefit from medication, which, it would seem, her treating doctor did not think appropriate, and from rehabilitation, which her employer on medical advice had not thought appropriate and was not criticised by the trustee for so thinking.
It will be seen that there is here a simple factual conflict as well as a difference of medical opinion. Accepting, as I do, that the trustee is under no general obligation to search out material, I consider that an honest and fair examination of the application before it would have involved at least putting these conflicts to Dr Stewart with an invitation that he comment upon them as seemed appropriate. As I have mentioned, I consider too that the trustee should have brought to Mrs Flegeltaub's attention and sought her response to the suggestion that she was unreasonably refusing medication. But it is not necessary that I express any final view on this matter.
Returning to the chronology, the trustee on 11 May 1994 wrote to Mrs Flegeltaub that it had determined that her claim be denied. She was told that "the trustee will consider an appeal against this decision only if supported by additional information". No reasons were given in the letter for this refusal. This refusal of the application is the first determination the subject of attack in this proceeding.
Reasons
Counsel for Mrs Flegeltaub contended that, notwithstanding the absence of reasons in the trustee's letter, it had provided reasons for its decision and had thereby waived its immunity and invited an examination and review by the court of their soundness. I was invited to conclude that the trustee had given reasons which were contained in the record of telephone conversation between Mrs Flegeltaub and the trustee of 21 February 1994, in the trustee's letter of 18 April 1994 in which it sought further information, and in its letter of 11 May 1994 in which she was told of the determination. I am unable to extract from these two letters anything in the nature of a reason for the May determination. The telephone record, likewise, contains no statement by the trustee of any reasons for a decision which had yet to be made. Any submission which depends upon reasons having been given for the May determination must, therefore, fail.
The Question
It was next put that the trustee in making the May determination addressed the wrong question. There is a total absence of any evidence of the mental process which led to the determination. There is nothing to be found in the minute of the committee meeting of 11 May 1994. Of the five members of the committee on that date, two, Terry Colin McCredden, the Chief Executive Officer of the trustee, and Ian Eric Pullar, its manager, Death and Invalidity Benefits, gave evidence. Neither of them had any recollection of the basis of the determination. Notwithstanding this, there is much to be said for the submission, put on behalf of Mrs Flegeltaub, that her claim was rejected because the committee accepted the opinions of Dr Stern and Dr Walton that she was unreasonably refusing medication which was likely to improve her condition to the point where she would be able to work. In my opinion this is the correct inference to be drawn because there is nothing in the material to warrant the rejection of the claim on any other basis. In my opinion, these medical opinions addressed the wrong question and the committee was led by them into error. The relevant question was not about whether her refusal of medication was unreasonable; it was about whether her unreasonable refusal was a deliberate act by her for the purpose of causing the benefit to be paid to her.
The matter may be looked at from another perspective. It was either accepted by the trustee or demonstrated beyond any doubt that Mrs Flegeltaub satisfied paragraphs (a) and (b) of the definition and that she did not fall within proviso (2). The only rational basis for the refusal of her application was, therefore, that her refusal of medication brought her within proviso (1). The material before the trustee, taken at its highest, shows that she refused medication which was prescribed by Dr D.W. Stewart in 1992, some 12 months before she ceased her employment with Telecom and that she ceased employment, not on her decision, but by the decision of Telecom. Her stated reason for her refusal in 1992 was her fear of dependency. In 1994 she was still refusing medication and giving the same reason. Neither Dr Walton nor Dr Stern asserted that she was not genuine in her asserted reason. Their position was that her asserted reason was without rational foundation. In my opinion, no person in the position of the trustee could, upon a due and proper consideration of this material, rationally conclude that she was a person unreasonably refusing medication from 1992 to May 1994 deliberately for the purpose of obtaining the total and permanent invalidity benefit in 1994. I infer from this that the May determination of the trustee miscarried and was of no effect.
The Delegation Point
Counsel for Mrs Flegeltaub argued that the May determination was ineffective because it was made, not by the trustee, but by its Level 2 Benefits Committee. The response put on behalf of the trustee was that the committee was an authorised delegate of the trustee and that, in any event, its decision was ratified by the trustee. Given the conclusion I have reached it is not necessary that I deal with this submission, but, in deference to the arguments presented and in case this proceeding may go further, I shall briefly set out my views on it.
Clause 1.4.4 authorises the trustee to delegate any power exercisable by it and any of its duties under the deed. Notwithstanding the contrary submission put on behalf of Mrs Flegeltaub, I would be prepared to accept that, under this deed of trust, a power to determine a member's entitlement to benefit is delegable. The instrument of delegation was in evidence as Exhibit 30. So far as is relevant for present purposes, it provides:
Authority Delegate 78 Definition of 'Total and Permanent Invalidity"
Clause 2.1.2.
Agree with the Principal Employer, either generally or in any particular case, the definition of 'Total and Permanent Invalidity' where it is not to be as provided for in the definition.
Level 2 Assessment Committee Consider any information, evidence and advice provided to the Trustee by the Employer and other relevant information to determine:
(a) whether the Member has ceased to be an Employee and whether the Member is likely to ever engage in gainful work for which the Member is reasonably qualified; and
(b) whether the existence or continuation of disablement is deliberate (including an unreasonable refusal to submit to treatment) for the purpose of causing a benefit to become or to continue to be payable from the Fund.
Level 1 Assessment Committee (in accordance with any policies approved by the Level 2 Assessment Committee); or Level 2 Assessment Committee.
Level 2 Assessment Committee
The terms of the delegation, and of the instrument of delegation generally, show that the trustee has approached the task of delegation cautiously. Doubtless, it had in mind that the settlor and, perhaps, the members, expected it, rather than some administrator or other person, to exercise the important functions of considering and determining members' claims for benefits under the superannuation scheme.
The determination of Mrs Flegeltaub's benefit application such required the trustee to form a view upon the following questions:
(1) Whether the applicant had a disability.
(2)Whether the applicant's disability had had the result that she had been absent from all active work for a period of six months.
(3)Whether the applicant's disability had had the result that Telecom had required her to participate in a Rehabilitation Programme.
(4)Whether the applicant's disability had had the result that she had ceased to be an employee as defined in the deed.
(5)Whether the applicant's disability had had the result that she was unlikely ever to engage in any gainful work for which she is for the time being reasonably qualified by education, training or experience.
(6)Whether the disablement of the applicant was attributable to a material extent to deliberate action, including an unreasonable refusal to submit to treatment, for the purpose of causing a benefit to become payable from the fund.
(7)Whether the applicant who had been required by Telecom to participate in a Rehabilitation Programme had done so to the satisfaction of the trustee.
(8)Whether the trustee had agreed with Telecom not to insist upon the requirements referred to in questions (2), (3) and, possibly, (7).
(9)For the purpose of deciding questions (5) and (6) the trustee was required to consider what material other than that provided by Telecom was relevant.
The structure of item 78 of the instrument of delegation is first, to empower the Level 2 Assessment Committee to conclude an agreement with Telecom as to "the definition of Total and Permanent Invalidity where it is not to be as provided for in the definition". Two things need to be said about this delegation. The delegate is not described in exactly the terms of the Level 2 Benefits Committee, but it may be that this is a mere misdescription and of no significance. More significant is the subject matter of the delegation. What is meant by an agreement with Telecom "as to the definition of Total and Permanent Invalidity where it is not to be as provided for in the definition" in the trust deed? Is it intended that the Level 2 Assessment Committee may, with the concurrence of Telecom, modify the definition so that an applicant who would not otherwise be entitled to a benefit may obtain a benefit or that an applicant who is entitled to a benefit should be deprived of it? Is the applicant member to be consulted about such matters? The trustee is bound by the terms of the deed. It is not for it to agree with Telecom some basis for granting or withholding a benefit other than as is contained in the deed. That which it is not empowered itself to do cannot be delegated to another.
The second paragraph in item 78, by part (a) delegates certain functions to the Level 1 Assessment Committee in accordance with certain policies or, generally, to the Level 2 Assessment Committee. These functions, broadly but not precisely, cover questions (4) and (5) above. There is, however, even in these functions no power to determine the causal relationship between the applicant's disability and her ceasing to be an employee or her inability ever to engage in work. Furthermore, with respect to the latter matter, the burden of proof is changed. The definition requires the trustee to form an opinion that the applicant is unlikely to engage in specified work in the future; the delegate committee is to determine whether she is likely to engage in this work. This work which the member is or is not unlikely ever to engage in is not described in the delegation in terms of the definition. It follows from these disconformities between the delegated function and the function which the trustee must perform under the deed, that the determination by the delegate in terms of the delegation is not that which is entrusted by the deed to the trustee. Again, the trustee cannot delegate to another a function which the trustee itself is not empowered to perform. Furthermore, a determination by the delegate in terms of the delegated power does not satisfy the requirements of the deed.
The second paragraph in item 78, by paragraph (b), appears to be directed to proviso(1) of the definition which I have summarised in question (6). It delegates to the Level 2 Assessment Committee the functions there described. Again, these functions do not match the terms of the proviso, so that a determination by the delegate in the terms of the delegation does not discharge the trustee's obligation under the deed.
Those questions for the trustee which I have summarised in questions (1), (2), (7) and (9) are not at all the subject of delegation.
Finally, I have observed that the determination of an application for total and permanent invalidity benefits requires the trustee to form an "opinion" as to a number of matters and to be "satisfied" of one matter. The existence of this requirement has been relied upon, with some success, as the basis for the trustee's contention that its determination is the exercise of a discretionary power. This contention has earned for the trustee an exemption from scrutiny which might attend a non-discretionary determination. The instrument of delegation under item 78 makes no mention of this important component in the trustee's decision-making process. It seems that the delegate is not required or expected to form the opinion that is required of the trustee.
I am mindful of the fact that there is, in principle, much to be said for the position that the determination of the trustee under this deed to allow or to disallow a claim for total and permanent invalidity benefit is not a true exercise of discretion.[29] It is true that the trustee in making this determination is required by the trust deed to form an opinion upon certain matters. But it cannot be said, as a matter of logic or even common sense, that the trustee is entirely at large in forming the opinion. It is not, therefore, an "absolute and uncontrolled discretion" within the meaning of cl. 1.4.1 of the deed. The trustee is not entitled to make the decision perversely, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or on some basis which is irrelevant to the sensible expectation of the settlor.[30] The duty of the trustee is, plainly, to make a decision on the correct question or questions and to do so in good faith and upon a real and genuine consideration of the material. The function of the trustee in the present case, in accordance with the terms of the trust deed, is to apply the facts as it finds them to a given standard: the specified incapacity for work. If the trustee's state of mind is such that the application of these facts to the standard produces the result that it has formed the opinion that the applicant for benefits satisfies that part of the definition for which an opinion is required, then, subject to the other parts of the definition, the trustee must pay the benefit.[31] This is a very different kind of decision from, for example, that involved in the investing of the trust fund[32] or from the decision of a trustee under a non-superannuation trust to pay the fund to a beneficiary [33] or to a selected member of a class of potential beneficiaries.[34]
[29]In Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896 at 903, Lord Morton of Henryton regarded such a discretion as not a discretionary power in the ordinary sense of that phrase. See, too, Rapa v Patience ,unreported, SC (NSW), 4 April 1985, BC8500888 at p14 per McLelland J.
[30]Esso Australia Ltd v Australian Petroleum Agents' and Distributors' Association (Unreported, SC (Vic), Hayne J, 5 October 1993, BC9300733) at p. 22.
[31]Clause 2.3.3.
[32]Clause 1.10.1
[33]As was the case in Karger v Paul [1984] VR 161. Adopting the classification of Warner J in Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 at 1613-4, the decision of the trustee in Karger v Paul is a category 1 discretion; that of the trustee in the present case is a category 3 discretion.
[34]Re Beloved Wilkes' Charity (1851) 3 Mac & G 440; 42 ER 330.
Notwithstanding this, the cases to which I have referred in paragraph [16] above, make it clear that, even in a determination of the kind presently under consideration, the distinction between a trustee's decision that a fact exists and a trustee forming an opinion that a fact exists is of great legal significance. The omission of this component from item 78 of the instrument of delegation must therefore be fatal to its effectiveness for the purpose relied upon by the trustee.
I conclude that the determination of Mrs Flegeltaub's claim for benefits did not fall within the terms of the instrument of delegation. The May determination made by the Level 2 Benefits Committee is, therefore, ineffective on that ground.
Next, it was put that the May determination was, nonetheless, ratified by the trustee at the meeting of its board of directors on 22 June 1994. This argument was permitted by the amendment which I allowed very late in the trial, when the minute of this board meeting was discovered by the defendant. Among a number of items recorded in the minutes of this meeting is the following:
"17. Benefits Committee
The minutes of the Committee meeting held on 11 May 1994 were noted and accepted."
Notwithstanding some argument to the contrary, I am satisfied that the committee here referred to is the Level 2 Benefits Committee. It was at that meeting that Mrs Flegeltaub's application was rejected.
The difficulty with the ratification argument is that the minute does not show that the May determination was in fact ratified. The minutes of the Level 2 Benefits Committee meeting were, as I have observed, terse indeed. A person reading them would have known nothing more than the court: that Mrs Flegeltaub's claim was for total and permanent invalidity benefits and that it was denied. An examination of the minutes of the board meeting of 22 June shows that three members of the Level 2 Benefits Committee of 11 May 1994 were then present: Mr Eric Alford, Mr David Pitt and Mr McCredden. Ian John Slack, who participated in the May determination, is shown as having been present on 22 June, but not for the relevant board agenda item. Nothing appears which suggests that any of the material before the Level 2 Benefits Committee was before the directors. The board minute does not suggest that the merits or otherwise of the rejected claim were known to others present or that the board considered them in any way.[35] Indeed, the terminology of the board minute, especially when compared with other minutes of that meeting, suggests the contrary. The committee minute was, it appears, noted and accepted. There is no evidence that the directors on 22 June gave any real consideration to the matters which were required for a determination of Mrs Flegeltaub's claim. Mere formal adoption of the invalid May determination is not sufficient. [36] There is no basis for me to conclude that the board adopted as its own act the determination of the Level 2 Benefits Committee, that it treated this determination as authorised or that it otherwise ratified the May determination.
[35]Cf Libby v Kennedy [1999] Pensions LR 143
[36]In Re Jenner and Keighran's Contract [1925] VLR 283 at 296, per Irvine CJ.
In paragraph 14D of its amended defence the trustee also alleges three other acts of ratification. No leave was granted to rely upon these acts but, in fairness to the trustee, I will deal with them.
The first suggested act of ratification was the answer of the trustee to interrogatory 2(b) and (c), sworn on behalf of the trustee by Mr Slack on 16 February 1999. Interrogatory 2 and the answer of the trustee found their way into evidence through counsel for the plaintiff, apparently to deal with the remarkably evasive plea of the trustee in paragraph 10 of its defence. To the plaintiff's allegation that the trustee on 11 May 1994 "made a decision to reject the plaintiff's application", the defence, irrelevantly, admitted that on that date the trustee advised the plaintiff that it had determined that her claim was denied. Otherwise it did not admit the allegation. Interrogatory 2 fastens upon the determination referred to in the advice of 11 May 1994. The trustee now asserts that Mr Slack's answer amounts to an adoption by the trustee of the committee's determination, which determination it declined to admit. There is no substance in this contention.
The next alleged act of ratification is the trustee's letter of 11 May 1994 which I have referred to in paragraph [42] above. This is the letter in which Ms Schneider informed Mrs Flegeltaub that the trustee had determined that her claim be denied. Ms Schneider is, of course, not authorised to determine the claim nor to adopt it upon behalf of the trustee.
Finally, reliance is placed on the fact that the trustee, prior to December 1994 paid to Mrs Flegeltaub "her basis resignation benefit". There is, I think, little if any, evidence that any payment as alleged was made at that time. It was accepted by counsel that the trustee paid to her a withdrawal benefit, but the date of payment was not given. In any event, the payment of the withdrawal benefit cannot to my mind amount to the ratification asserted. I am not satisfied that ratification on any basis has been established by the trustee.
The December Determination
The Facts
It will be recalled that in its letter of 11 May 1994 the trustee invited Mrs Flegeltaub to "appeal" against the May determination if she had additional information. The concept of appeal in this context raises difficulties. The deed does not contemplate an appeal. The appeal, it would seem, was to be to the trustee which had itself previously rejected the claim. The mention of additional information suggests that the letter intended Mrs Flegeltaub to understand that there was a right to a reconsideration of the claim if new material was produced. She had no information as to what material the trustee already had. Nothing was disclosed as to the matter to which the additional information might be directed or as to what material she was to add to what was presently available to the trustee. Notwithstanding this, Mrs Flegeltaub, through her solicitors, wrote to the trustee on 15 November 1994 seeking a review of the May determination. In support of this request they enclosed a further report of Dr D.W. Stewart dated 25 October 1994. The report, not surprisingly, does not address the question of her refusal of medication. Its tenor suggests that the writer believed, mistakenly, that the trustee had formed the view that she was not unable to return to work. Dr Stewart reiterated his opinion that this was not correct. He wrote as follows:
"In regard to future capacity for work. When I last saw Mrs Flegeltaub she was clearly unfit to work. Further I consider that she will remain permanently unfit to work in an area for which she is qualified or any other area. She is barely able to cope with the duties of managing a home and children and these will constitute considerable stresses for her for some years to come. When the time does come for Mrs Flegeltaub to be relieved of the responsibility of her family, I do not believe she will be in any fit state to work. She will be a chronically anxious obsessional phobic lady, considerably lacking the self confidence that would be needed for her to be employed. Regarding future medical treatment, she is probably going to require some help from time to time such as when the symptoms of depression or anxiety may become acute. However I think it unlikely that medical treatment will be available that would so change her that her capacity for employment outside the home would be restored."
It seems that in November 1994, the material before the Level 2 Benefits Committee in May 1994 together with the solicitors' letter and the further medical report were referred to the Level 1 Assessment Committee. It is not clear what decision this committee was authorised to make. Mr Pullar, however, on 24 November 1994 reported to Mr Alford and Mr Greg Schott, two directors of the trustee, that the Level 1 Assessment Committee was of opinion "that there is insufficient evidence to justify the Level 2 Benefits Committee reversing its decision" and that the appeal should therefore go directly to the next full board meeting on 13 December 1994. It appears from the instrument of delegation to which I have referred that the Level 1 Assessment Committee comprised at least two of the following, the manager, Death and Disability Benefits (Mr Pullar), the operations manager (Mr Slack) and the Chief Executive Officer (Mr McCredden). Notwithstanding this decision of the Level 1 Assessment Committee, it seems that the Level 2 Benefits Committee did consider the matter, for Mr McCredden reported to the board on 13 December that this committee did not wish to alter its earlier decision.
Mr Pullar also prepared a file summary. It is fair to say that this summary is not at all supportive of the review application. It is a short document, presented under six headings and concludes with the following comment and recommendation:
"Comment
The information presented with the appeal does not add significantly to the claim as it was assessed in May 1994.
Recommendation
I recommend that the decision by the Level 2 Benefits Committee on 11th May to deny Mrs Flegeltaub's claim for the Total and Permanent Invalidity benefit from the Telecom Superannuation Scheme not be overturned."
These documents and most of those which were before the Level 2 Benefits Committee in May, were placed before the board on 13 December. On the very morning of the board meeting a further letter from Mrs Flegeltaub's solicitors was received, which enclosed a report from her general practitioner, Dr D.I. Stewart, dated 23 November 1994. Again, it is regrettable that this doctor's attention had not been directed to the matter which was troubling the trustee - the applicant's unreasonable refusal to take medication. Dr Stewart concluded his short report with a plea for compassion. He referred to the opinions of Dr D.W. Stewart and Dr Stern that she was totally and permanently incapacitated. This is evidently a reference to their reports dated respectively 28 September 1993 and 19 August 1993 to which I have referred in paragraph [36] and [37] above. It seems, however, that Dr D.I. Stewart was unaware of the further information obtained from Dr Stern and the opinions, of Dr Walton given in 1994. Writing of the two 1993 reports, Dr Stewart, said this:
"Evidently the Superannuation Board did not accept either opinion and obtained an opinion favourable to them from another psychiatrist.
It is impossible to say that Mrs Flegeltaub will ever [sic. Perhaps this was intended to read “never”.] work again as she could be forced back to work by financial circumstances. She now has five children.
If it is the intention of the Superannuation Board for this to happen I think they lack even the most minute amount of compassion.
I am certain however if this situation arises she will need long term psychiatric treatment."
The directors of the trustee were unmoved. The relevant minute of their meeting of 13 December 1994 is short and to the point:
13.2 Glenda Flegeltaub
Mr Slack tabled a letter from Mrs Flegeltaub's solicitor together with a letter from a treating doctor which were received this morning. The Directors considered all the papers and unanimously resolved to deny a total and permanent invalidity benefit to Mrs Flegeltaub."
Mrs Flegeltaub was informed of this determination by letter dated 14 December 1994. No reasons were given other than that the trustee had all the medical and other reports before it.
Reasons
Again, it was argued that this was a reasoned determination and that these reasons were examinable. In the case of the December determination the reasons were said to be contained in the letter of 14 December 1994 to which I have referred. Again, I do not think this is correct. All the trustee there says is that all of an unspecified number of unspecified reports and papers were before the trustee. Nothing is said as to the basis of the decision to deny the claim.
The Question
As with the May determination, there is little direct evidence of the question which the board considered on 13 December. Indeed, the matter is even more confused by the approach adopted by Mr Pullar in his file summary. He presented the case to the board as one as to whether the additional material warranted the overturning of the May determination.
It is, however, clear that nothing was before the board which would entitle them, any more than the Level 2 Benefits Committee in May, to conclude that Mrs Flegeltaub's refusal of medication was an unreasonable refusable made deliberately for the purpose of obtaining the benefit. For the reasons which I have already set out in my consideration of the May determination, the December determination, too, miscarried and is of no effect. I am satisfied that the board in December addressed the wrong question and that, on the material before it, no reasonable person could conclude that Mrs Flegeltaub's refusal of medication fell within the terms of proviso (1).
The 1999 Refusal to Review
After the commencement of this proceeding the solicitors for Mrs Flegeltaub renewed their application to the trustee for it to review the decisions made in 1994. The trustee declined to reopen the matter. The plaintiff, therefore, seeks declarations and orders that its decision to refuse a review was in breach of one or other of its obligations as trustee. Having regard to the conclusions which I have reached, that the determinations in 1994 were invalid and ineffective, the significance of the trustee's refusal to reopen the matter in 1999 disappears. I shall say nothing further about it.
Conclusions
I have concluded that the trustee has not validly determined Mrs Flegeltaub's application for total and permanent invalidity benefits. The choice available to me now is to remit the question to the trustee for its consideration or to determine it myself after hearing further evidence or by a decision on the material as it now stands. As to the last course, this is not a case where I might summarily, as it were, substitute my decision for that of the trustee in 1994. This course is not open for a number of reasons including the fact that some five years have been permitted to elapse since the trustee considered her application. It may well be that the present situation is very different from that obtaining in 1994.
The cases show that the court may and will itself execute the trust and determine the entitlement of the claimant to a benefit where there is good reason to believe that the trustee would not itself do so[37] or where the material before the trustee was such that there could be no debate about the entitlement of the claimant.[38] I am not satisfied on the material before me that the trustee would not look again at Mrs Flegeltaub's application with an open mind and assess it in accordance with its lawful obligations as trustee which I have discussed. Furthermore, the regrettable passage of some five years since her cessation of employment may mean that the circumstances today are very different from those obtaining in 1994. These will have to be investigated by the decision-maker.[39] In those circumstances I will not myself entertain the application which, under the trust deed, is for the trustee itself to determine. I am persuaded that the proper course is for me to remit the question to the trustee for it to determine in accordance with the law.
[37]Rapa v Patience ,unreported, SC (NSW), 14 April 1985, BC8500888 at 14, per McClelland J. See, too, Minehan v AGL Employees Superannuation Pty Ltd (1998) 134 ACTR 1 at [68], per Gallop ACJ; Dillon v Burns Philp Finance Ltd unreported, SC (NSW), 20 July 1998, BC 8801719 at p.15.
[38]Vidovic v Email Superannuation Pty Ltd (unreported SC (NSW), Bryson J, 3 March 1995, BC9504297) at p.22 per Bryson J
[39] See Neskovski v Rogers (Unreported, SC (NSW), at p.5, per McLelland CJ, 12 May 1995, BC9504722).
I propose therefore the following orders:
1.Declare that the following decisions, determinations and resolutions were not an effectual exercise of the power of the defendant to determine the plaintiff's claim for total and permanent invalidity benefits pursuant to the Telstra Superannuation Scheme, namely:
(a)the determination of the Level 2 Benefits Committee of 11 May 1994;
(b)the resolution of the board of directors of the defendant of 22 June 1994;
(c)the resolution of the board of directors of the defendant of 13 December 1994.
2.Order that the declaration and order sought in paragraphs B, C and D of the plaintiff's statement of claim be refused.
3.Order that the question whether the plaintiff is entitled to a total and permanent invalidity benefit pursuant to the Telstra Superannuation Scheme be remitted to the defendant for determination in accordance with the trust deed.
4.Order that the defendant pay the costs of the plaintiff including reserved costs and the costs of transcribed notes.
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