Hill v Zuda Pty Ltd as trustee for the Holly Superannuation Fund
[2020] WASC 89
•25 MARCH 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: HILL -v- ZUDA PTY LTD as trustee for THE HOLLY SUPERANNUATION FUND [2020] WASC 89
CORAM: MASTER SANDERSON
HEARD: 29 JANUARY 2020
DELIVERED : 25 MARCH 2020
FILE NO/S: CIV 2767 of 2019
BETWEEN: CLAIRE ELIZABETH HILL
Plaintiff
AND
ZUDA PTY LTD as trustee for THE HOLLY SUPERANNUATION FUND
First Defendant
JENNIFER PATRICIA MURRAY as executor of the estate of ALEC SODHY
Second Defendant
JENNIFER PATRICIA MURRAY
Third Defendant
Catchwords:
Summary judgment application by defendants - Turns on own facts
Legislation:
Superannuation Industry (Supervision) Act 1993 (Cth)
Superannuation Industry (Supervision) Regulations 1994 (Cth)
Result:
Defendants' application for summary judgment granted
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr B W Ashdown |
| First Defendant | : | Mr A P Hershowitz |
| Second Defendant | : | Mr A P Hershowitz |
| Third Defendant | : | Mr A P Hershowitz |
Solicitors:
| Plaintiff | : | Eastwood Law |
| First Defendant | : | Lawton Gillon |
| Second Defendant | : | Lawton Gillon |
| Third Defendant | : | Lawton Gillon |
Case(s) referred to in decision(s):
Cantor Management Services Pty Ltd v Booth (2017) 106 ATR 615
Munro v Munro [2015] QSC 61
Re Narumon Pty Ltd [2008] QSC 185
Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121
MASTER SANDERSON:
This case shows up the weakness of the defendants' summary judgment procedure. In jurisdictions other than Western Australia the summary judgment procedure – whether a plaintiff's application or a defendant's application – is used sparingly. It is generally reserved for cases involving a mortgage where a lender alleges there is no defence. That is the case in this jurisdiction as well; but there is also a tradition of more robust use. The use of the summary judgment process is understandable – it can bring to a swift end actions which have no hope of success. There are occasions when the desire to bring a swift end to proceedings can better be achieved by other means. This is one of those cases.
There was no dispute between the parties as to the principles applicable to a defendant's summary judgment application. The plaintiff is confined to its pleaded claim. It is for the defendants to establish that assuming the pleaded facts to be correct, the action cannot succeed. It is only in the clearest of cases summary judgment ought be granted.
The background facts were set out in the defendants' written submissions. They are uncontroversial. The summary which follows is taken largely from the defendants' written submissions.
The third defendant, Jennifer Murray (Jennifer) was the de facto partner of the late Alec Kumar Sodhy (the deceased) for a period of approximately 33 years prior to his death on 22 November 2016. Jennifer is the executor of the estate of the deceased. Probate of the deceased's will was granted to Jennifer on 3 February 2017. The plaintiff was born in 1983 and is the only child of the deceased. The plaintiff's mother proved the paternity of the plaintiff in proceedings taken in 2003. Jennifer is the beneficiary of the estate of the deceased. The plaintiff commenced proceedings against Jennifer as executor of the estate for provision pursuant to the Family Provision Act 1972 (WA) on 27 July 2017. Jennifer is the sole director of the first defendant in its capacity as trustee for the Holly Superannuation Fund. The Holly Superannuation Fund was created by Deed dated 14 June 2000. This Deed was amended by an amending Deed dated 13 December 2011. The Holly Superannuation Fund had two members from its establishment – the deceased and Jennifer. Presently Jennifer is the only member.
Clause 1.5 of the amending Deed constitutes a binding death benefit nomination. Alec Sodhy directs Zuda Pty Ltd as trustee of the Holly Superannuation Fund upon his death 'must' pay any benefit he is entitled to under the Holly Superannuation Fund to Jennifer. The Trust Deed and the amending Deed defined 'binding death benefit nomination' as follows:
[M]eans a written notice that:
·directs the Trustee to pay the whole or part of a benefit payable on the Member's death to one or more Dependants or the legal personal representative in specific proportions; and
·may include instructions as to the manner of payment (eg lump sum or pension).[1]
[1] Affidavit of Jennifer Patricia Murray sworn 18 October 2019; Annexure JM4 page 37.
This direction is said to be subject to any 'government requirements'. That phrase is defined as follows:
[M]eans any requirements under laws relating to superannuation funds;
(a)imposed on the Trustee; or
(b)that the Fund must satisfy to qualify for the most favourable taxation treatment available to superannuation funds.[2]
[2] Affidavit of Jennifer Patricia Murray sworn 18 October 2019; Annexure JM4 page 37.
Clause 5.2 of the amending Deed provides that a member may give the trustee a binding death benefit nomination.
The plaintiff's primary cause of action asserts in effect that the binding death benefit nomination arising from the amending Deed is not valid as it does not comply with s 31 and s 55A of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) and reg 6.17A(6)(b) and (c) and reg 6.17A(7)(A) of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations). The plaintiff pleads as an alternative cause of action at par 14 of the statement of claim that cl 4 and cl 5 of the amending Deed were not accepted by Zuda Pty Ltd as a binding death benefit nomination. The balance of the relief sought by the plaintiff is dependent upon the plaintiff successfully establishing that the binding death nomination is invalid and setting the binding death benefit nomination aside.
Regulation 6.17A of the SIS Regulations, which regulates payment of benefit on or after death of a member for the purposes of s 59(1A) of the SIS Act, sets out the conditions for the purpose of s 59(1A) for the payment of a death benefit after the death of a member. Regulations 6.17A(6) and (7) of the SIS Regulations prescribe certain requirements that must be met for a binding death benefit nomination to be effective.
Section 59 of the SIS Act is in the following terms:
59Exercise of discretion by person other than trustee
(1)Subject to subsection (1A), the governing rules of a superannuation entity other than a self managed superannuation fund must not permit a discretion under those rules that is exercisable by a person other than a trustee of the entity to be exercised unless:
(a)those rules require the consent of the trustee, or the trustees, of the entity to the exercise of that discretion; or
(b)if the entity is an employer‑sponsored fund:
(i)the exercise of the discretion relates to the contributions that an employer‑sponsor will, after the discretion is exercised, be required or permitted to pay to the fund; or
(ii)the exercise of the discretion relates solely to a decision to terminate the fund; or
(iii)the circumstances in which the discretion was exercised are covered by regulations made for the purposes of this subparagraph.
(1A)Despite subsection (1), the governing rules of a superannuation entity may, subject to a trustee of the entity complying with any conditions contained in the regulations, permit a member of the entity, by notice given to a trustee of the entity in accordance with the regulations, to require a trustee of the entity to provide any benefits in respect of the member on or after the member's death to a person or persons mentioned in the notice, being the legal personal representative or a dependant or dependants of the member.
(2)If the governing rules of a superannuation entity are inconsistent with subsection (1), that subsection prevails, and the governing rules are, to the extent of the inconsistency, invalid.
Section 55A(1) of the SIS Act provides that the governing rules of a regulated superannuation fund must not permit a fund member's benefit to be cashed after the member's death otherwise than in accordance with the standards prescribed for the purpose of s 31. Section 31 of the SIS Act provides the regulations may prescribe standards applicable to the operation of regulated superannuation funds. It is the defendants' position that s 59(1) of the SIS Act does not apply to a self‑managed superannuation fund and the exception to the application of s 59(1) found in s 59(1A) also does not apply to self‑managed superannuation funds.
It is the defendants' position that the law as it stands at present is clear. That is to say a self‑managed superannuation fund is not required to comply with reg 6.17A unless the terms of the constituent deed expressly provide to that effect. In this case the Holly Superannuation Deed and the amending Deed do not require compliance with reg 6.17A. There is no dispute that the Holly Superannuation Fund is a self‑managed superannuation fund.
In support of its position the defendants rely on three cases. The first is Munro v Munro [2015] QSC 61. For present purposes it is unnecessary to detail the facts of the case. Mullins J set out the parties' contentions in the following way:
[32]The applicants contend that s 59(1A) of the SIS Act does not apply to the fund as it is a self managed superannuation fund and that means reg 6.17A of the SIS Regulations does not apply. The applicants rely on support found in the ruling of the Commissioner of Taxation: Self Managed Super Funds Determination 2008/3 (SMSFD 2008/3). The applicants argue that the definition of Relevant Requirements in the trust deed does not import reg 6.17A, but does import reg 6.22. Regulation 6.22 requires that the death benefit may be paid only to a legal personal representative or a dependant. The applicants argue the nomination dated 22 September 2009 made by Mr Munro in favour of the 'Trustee of Deceased Estate' was intended to be operative as a binding death benefit nomination and should be given effect as such on the basis that 'Trustee of Deceased Estate' is another way of referring either to the executors or, on an alternative argument, to the testamentary trustees as dependants. In support of the first argument, the applicants rely on the broad meaning given to 'trustee of a deceased estate' in the Income Tax Assessment Act 1997 (Cth) (ITAA), and particularly s 302.10 dealing with the taxation of superannuation death benefits paid to the trustee of a deceased estate.
[33]The respondents submit, in reliance on Donovan v Donovan [2009] QSC 26, that the effect of SMSFD 2008/3 is displaced, as the definition of Relevant Requirements under the trust deed imports the requirements of reg 6.17A of the SIS Regulation in respect of the form of the binding death benefit nomination. The nomination dated 22 September 2009 does not comply with reg 6.17A. Alternatively, the respondents argue that in any case, the nomination does not comply with reg 6.22 as it is not a nomination in favour of either Mr Munro's legal personal representative or a dependant or dependants. The definition of legal personal representative in s 10 of the SIS Act means, in relation to Mr Munro, the executors of his will and does not extend to the trustee of his estate.
So the question for determination was whether or not Mr Munro's death benefit nomination had to comply with reg 6.17A. His Honour dealt with the matter this way:
[35]Although SMSFD 2008/3 is not binding on the court (or the Commissioner of Taxation) it sets out a logical approach to the construction of s 59 of the SIS Act which I consider correct and adopt for the purpose of determining the applicability of reg 6.17A of the SIS Regulations to the fund.
[36]As s 59(1) of the SIS Act does not apply to a self managed superannuation fund, the exception to the application of s 59(1) found in s 59(1A) also does not apply to a self managed superannuation fund. Regulation 6.17A sets out the conditions for the purpose of s 59(1A) for the payment of a death benefit after the death of a member, but in view of the exclusion of a self managed superannuation fund from the operation of s 59(1), those conditions do not apply by virtue of either the SIS Act or the SIS Regulations to a self managed superannuation fund.
[37]To the extent that the respondents rely on Donovan (which also concerned a self managed superannuation fund) to construe the subject trust deed as importing the requirements of reg 6.17A of the SIS Regulations, that case can be distinguished. It was not necessary for the decision in Donovan, but Fryberg J expressed the view that, as the rules of the relevant fund required a binding nomination to be in the form required to satisfy the 'Statutory Requirements' as defined in the relevant trust deed, the trust deed required compliance with reg 6.17A of the SIS Regulations. The definition of “Statutory Requirements” in the relevant trust deed was:
'Statutory Requirements' means the requirements imposed under any law or by any Statutory Authority which must be satisfied by a superannuation fund in order to qualify for income tax concessions provided that where the Member's Application indicates that the pension is taken out to comply with the requirements of the Social Security Act 1991 of the Veteran's Entitlements Act 1986, the term shall include those acts.
The second case upon which the defendants' rely is again a decision of the Supreme Court of Queensland Re Narumon Pty Ltd [2008] QSC 185. Bowskill J was asked to consider precisely the same question as was considered by Mullins J in Munro v Munro. By way of preliminary comment his Honour said:
[34]In its primary submissions at the hearing of the application the applicant submitted it was arguable the formal requirements of reg 6.17A do apply. However, in supplementary submissions provided after the hearing the applicant submitted it does not. This was on the basis of Munro v Munro (2015) 306 FLR 93, in which Mullins J held that s 59(1A) of the Superannuation Industry (Supervision) Act 1993 does not apply to self-managed superannuation funds and that, accordingly, reg 6.17A, which sets out the conditions for the purposes of s 59(1A) for the payment of a death benefit after the death of a member also does not apply, by virtue of the Act or the regulations, to a self‑managed superannuation fund. However, the applicant submitted that the requirements in reg 6.17A(6) are imported into the Fund deed, as a result of the definition of 'Nominated Beneficiary' in clause 15.1 of the deed (to be read with clause 7.12.1).
[35]I agree with Mullins J's conclusion in Munro v Munro at [35]‑[36], that s 59(1A) of the Act does not apply to a self‑managed superannuation fund.
[36]I have considered whether reg 6.17A applies in any event, but have ultimately come to the conclusion that it does not.
Having indicated he agreed with the decision of Mullins J, his Honour then went on at [37] – [45] to explain why he too came to the same conclusion. It would be tedious to repeat his Honour's reasoning. It is sufficient for present purposes if I say the decision is squarely against the plaintiff.
Finally, the defendants relied on the judgment of the Full Court of the Supreme Court of South Australia in Cantor Management Services Pty Ltd v Booth (2017) 106 ATR 615. Once again the applicability of the regulations were squarely in issue. Kourakis CJ (with whom Peek and Nicholson JJ agreed) put the position this way:
30.In Munro v Munro, Mullins J held that those regulations do not apply to self managed superannuation funds. I respectfully agree with her Honour's conclusion. Section 59(1) of the SIS Act prohibits, subject to s 59(1A), the exercise of any discretion affecting the superannuation fund by any person other than the trustee. However s 59(1) of the SIS Act expressly excludes self managed superannuation funds from its application. It follows that the provision in s 59(1A) of the SIS Act which allows members to bind the trustee to pay a death benefit to a nominee if the prescribed form is followed, does not apply as a general rule governing the way in which a binding nomination may be given by a member of a SMSF. The trust deed under which the SMSF is constituted will govern the form in which a binding nomination may be given.
The defendants say the position is quite clear. There are two first instance Queensland judgments which strongly support their position. Perhaps more importantly there is a decision of an intermediate Court of Appeal which also supports their position. That, they say, establishes the law as it stands at present. It is to be borne in mind the act and regulations under consideration here are Commonwealth laws. It is a well‑established principle that when interpreting Commonwealth legislation a court at first instance should not diverge from intermediate appellate authority unless there is extremely good reason for doing so.
In his written submissions counsel for the plaintiff submits the three cases I have detailed above are wrongly decided. Counsel refers to the decision of Blue J in Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121. Relevantly Blue J sets out what he says as the starting point in determining this question. He says at [495]:
495.Regulation 6.17A juxtaposes regulations made under two separate heads of power having two different operations. Subregulations (2) and (3) are expressed to be made under subsection 59(1A) to define the conditions for giving a notice. Subregulations (1) and (4) to (7) are expressed to be made under section 31 to be an operating standard applicable to regulated superannuation funds. This results in ambiguity as to the meaning and effect of regulation 6.17A as a whole.
His Honour then says:
499.First, it is a matter of importance in the drafting of a regulation that the source of power in the statute for the making of the regulation be unambiguously identified. The fact that subregulation (2) (which carries with it subregulation (3)) is said to be made 'for section 59(1A)' and subregulation (4) is said to be made 'for section 31' is a powerful indicator that subregulation (4) is not made under subsection 59(1A).
500.Secondly, conditions and notice requirements prescribed for the purpose of subsection 59(1A) have a fundamentally different character to operational standards prescribed for the purpose of section 31. The latter operate of their own force to require a trustee, under pain of prosecution for intentional or reckless breach, to act in the manner prescribed by the regulation. The former operate as conditions for exemption from the subsection 59(1) prohibition on the exercise of third party discretion but leave it to the governing rules to provide that the trustee must act in accordance with the direction by the member. In the absence of express provision, it is unlikely that subregulation (4) is intended to operate simultaneously in both these divergent ways.
501.Thirdly, subregulation (4) is constructed in a manner apposite to an operating standard and inapposite to a condition for exemption from the subsection 59(1) prohibition. Subregulation (4) operates of its own force to require a trustee to make payment in accordance with the notice if the conditions contained in subregulations (4) to (7) are satisfied and hence operates like other operating standards made under section 31. If it were creating a condition for exemption from the subsection 59(1) prohibition, it would not operate of its own force but merely clear the way for the governing rules to operate.
502.Fourthly, to the extent that it is contended by APRA that subregulation (7) is made under subsection 59(1A), the question arises whether it would be empowered by that provision. Subsection 59(1A), in conjunction with the regulation-making power in section 353, authorises the making of regulations specifying:
·conditions, compliance by the trustee with which; and
·requirements for the notice, compliance by the member with which,
are necessary as preconditions for the subsection (1A) exemption from the subsection 59(1) prohibition. APRA contends that subregulation (7) is validly made under the first limb or the second limb. I reject that contention.
503.The first limb authorises the making of regulations specifying conditions to be complied with by the trustee. It does not authorise the regulations to provide that a notice ceases to have effect after three years: such a provision does not call for any act to be undertaken by the trustee and no question of compliance or non-compliance by the trustee can arise in respect of such a provision. The second limb relates to the form and content of the notice: it does not extend to the notice being rendered ineffective by lapse of time. Both limbs proceed on the basis that a notice is either valid at the time it is given or it is not. Subsection 59(1A) does not contemplate that a notice will be valid when given but subsequently cease to be valid as a result of the effluxion of time.
504.Generally regulations are construed on the presumption that they are valid. The fact that subregulation (7) would be invalid if made under subsection 59(1A) renders it unlikely that it was intended to made under that provision. The fact that it is valid to the extent that it is an operating standard made under section 31 renders it likely that it was made exclusively under section 31. If subregulation (7) is made exclusively under section 31, it is likely that subregulations (4) to (6) were also made exclusively under section 31.
505.On the construction advanced by the plaintiff and defendant, regulation 6.17A operates in a rational manner. There is an overarching requirement for exemption from subsection 59(1) that the requisite information be given. There is then a regime making it mandatory for a trustee to comply with a notice if the subregulation (4) to (7) conditions are satisfied. In this respect, the governing rules cannot prescribe additional conditions: the field is covered by regulation 6.17A. For example, the governing rules could not impose an additional condition that the notice be witnessed by a justice of the peace or that a solicitor certify that the member understands the effect of the notice. Outside the mandatory regime imposed by regulation 6.17A, the governing rules may provide for the trustee to be bound to act in accordance with a notice in additional circumstances: this is a matter for the governing rules.
506.On the other hand, there is a single contra-indication that suggests that subregulation (4) was made under subsection 59(1A). This is the fact that subsection 59(1A) contemplates regulations specifying the form of notices from members, and absent subregulation (4) performing this function, the Regulations do not specify such form. This is a powerful factor in support of the construction advanced by APRA. However, this factor must be weighed against the factors identified above in support of the construction advanced by the plaintiff.
507.APRA draws attention to the explanatory statement prepared in relation to the amending regulations that inserted regulation 6.17A into the SIS Regulations. The explanatory statement includes the following:
The Act and the Superannuation Industry (Supervision) Regulations (the Principal Regulations) provide for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.
The purpose of the Regulations is to make various miscellaneous amendments to the Principal Regulations which are consequential to the Superannuation Legislation Amendment Act 1999 including amendment to:...
* put in place administrative controls governing the acceptance of binding death benefit notices including
- amending the disclosure requirements in the Principal Regulations to require trustees of relevant funds to notify members of their death benefit notices in annual statements and enable them to confirm or update their notices as necessary to protect fund members whose domestic circumstances change; and
- amending the Principal Regulations to automatically invalidate a death benefit notice after three years.
508.APRA contends that the reference to 'automatically invalidate a death benefit notice after three years' supports the construction it advances. I assume that explanatory statements can be used to assist in the interpretation of regulations in the same manner as explanatory memoranda can be used to assist in the interpretation of statutes.
509.This explanatory statement does not assist, however, in the construction of regulation 6.17A. An explanatory memorandum can be used to identify the mischief to which the provision is addressed and the purpose or object of the provision but not to identify the meaning of the provision intended by the author. This explanatory statement does not identify the mischief to which the regulation is addressed or the purpose or object of the regulation and is inadmissible.
510.In any event, the reference to 'automatically invalidate a death benefit notice after three years' is ambiguous. It might mean that the invalidation is effected as part of a mandatory operating standard requiring trustees to comply with notices regardless of provisions of the governing rules, in which case it is consistent with the construction advanced by the plaintiff. It might mean that any regime in the governing rules for binding death benefit notices is subject to automatic invalidation after three years; however, it is common ground that notices subject to a requirement for trustee consent are not so invalidated. It might mean that, for the purpose of subsection 59(1A), notices are automatically invalidated after three years. The explanatory statement does not address any aspects of regulation 6.17A other than subregulation (7) and in particular does not address the legislative source of power for any parts of the regulation.
511.The issue of the construction of subregulations (4) to (7) cannot be decided in this action as between competing beneficiaries and it is unnecessary for the purposes of this action to decide it. It is sufficient to note that the issue of construction could be decided either way as between competing beneficiaries and it is likely that subregulation (7) is invalid if the construction advanced by APRA is correct. In consequence, it is in the interests of beneficiaries that the Trust Deed be drafted as far as practicable to best accommodate either construction.
The difficulty for the plaintiff in placing reliance upon the Pain decision is that while the case sets out the arguments in favour of the plaintiff's position it is not actually a decision on point. That is made plain by [511]. Furthermore, the decision of the South Australian Full Court in Cantor Management was delivered some 12 months after Blue J's decision in Pain. There is no mention in the Cantor Management decision of the Pain decision. The case may or may not have been cited. It is difficult to imagine why it was not. Either way Blue J's reasoning was not adopted by the Full Court.
The position then is this: The authorities are all one way and favour the defendants. As the law stands in Australia at the moment, the plaintiff's claim cannot succeed. While the argument detailed in Blue J's judgment in Pain is of interest it cannot provide a basis upon which the plaintiff's action can succeed. Accordingly, the defendants are entitled to an order for summary judgment.
It may well be the case this decision is the subject of appeal. That highlights the deficiency in the summary judgment procedure. The Court of Appeal will be asked to determine whether or not the plaintiff's position is arguable. Were the plaintiff to succeed with the appeal, the matter would have to be referred back to the general division for hearing. It may be that the decision of the Court of Appeal would be in terms which makes it plain the argument advanced by the plaintiff succeeds. But there then may be other issues to be determined in the proceeding. Rather than act by way of summary judgment in this case it may have been preferable for the parties to have had the action tried. It is difficult to see that any oral evidence would have been necessary. But even if it was necessary to call witnesses the evidence would have been of limited scope. Then the outcome could have been the subject of an appeal and the appeal would have finally disposed of the action. That would have been a more efficient way of dealing with what is a crisp point.
In making these comments I am not in any way being critical of solicitors or counsel. The defendants proceeded in a proper and appropriate manner and they have been successful. But in the interests of efficient case management a trial may have been the preferable course.
Parties to confer as to a precise form of orders and as to costs. In the circumstances an agreement cannot be reached, parties are to file competing minutes of proposed orders by 31 March 2020.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IW
Associate to Master Sanderson25 MARCH 2020
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