Kawka v Australiansuper Ltd

[2009] VCC 1588

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE

BUSINESS LIST – COMMERCIAL DIVISION

Case No. CI-08-02759

REGINA KAWKA	Plaintiff
v
AUSTRALIANSUPER PTY LTD	Defendants
and
NATIONAL MUTUAL ASSOCIATION OF AUSTRALASIA LTD

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JUDGE:	HIS HONOUR JUDGE BOWMAN
WHERE HELD:	Melbourne
DATE OF HEARING:	18 November 2009
DATE OF JUDGMENT:	14 December 2009
CASE MAY BE CITED AS:	Kawka v Australiansuper Ltd & Anor
MEDIUM NEUTRAL CITATION:	[2009] VCC 1588

REASONS FOR JUDGMENT

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Catchwords: Total and permanent disablement – previous determination that no reasonable insurer or trustee acting proper could have arrived at the conclusion which each did. – a question of disposition of the case – whether there should be remission to the first defendant as trustee – whether case against second defendant as insurer should proceed and be determined by the Court – relationship between the defendants – whether second defendant in fact primary decision maker – desirability of claim against both defendants being heard as one action – factors to be considered.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J. Riordan with	Slater & Gordon
Mr A. Hill
For the Defendant	Mr R. Shepherd	Solicitor to AXA Asia Pacific Holdings Ltd
HIS HONOUR:

General background

1          I have previously given a judgment or ruling in this matter, it being dated 11 September 2009. The factual background and history of events are set out at some length in that judgment, and I shall not repeat them here. Suffice to say that the defendants had refused to pay to the plaintiff monies pursuant to a claim for superannuation benefits payable in the event of her becoming totally and permanently disabled. The first defendant is the trustee of the fund involved, and the second defendant the insurer. My finding was that no reasonable insurer, acting properly and in good faith, could have come to the conclusion at which the second defendant arrived, and, given that the first defendant effectively adopted the decision of the second defendant without adding to it, each decision was equally erroneous or unsatisfactory and no reasonable trustee acting properly could have arrived at the decision of rejection.

The current dispute

2          I stated at the conclusion of my earlier judgment that questions remained in relation to the disposition and future conduct of the matter. The initial hearing and judgment related only to whether or not the decisions taken by the defendants could be successfully impugned. At the end of that judgment I indicated that I would hear the parties as to the further steps that were to be taken in relation to the disposition of the matter. It was in this regard that the matter came on back before me on 18 November 2009. Whilst I shall expand upon the submissions made, in summary the plaintiff argued that I should proceed with the hearing of the case against the defendants, and particularly the second defendant, being the insurer, whilst the defendants argued that the matter should be remitted to the first defendant, being the trustee, for its further consideration with the claim as against the second defendant insurer effectively being put “on hold”.

3          Mr J. Riordan of counsel and Mr A. Hill of counsel again appeared on behalf of the plaintiff. Mr R. Shepherd of counsel again appeared on behalf of the defendants. No oral evidence was adduced. No additional documents over and above those previously tendered were put in evidence. Again, I was fortunate to be presented with very careful and helpful submissions.

4          I shall now summarise those submissions in the order in which they represented.

The submissions on behalf of the plaintiff

5           The submissions of Mr Riordan and Mr Hill on behalf of the plaintiff could be summarised as follows.

6          The plaintiff’s general position is that there is no doubt but that I should proceed to hear the matter insofar as it involves the second defendant, being the insurer. Reference was made to various authorities, including Oberlechner v Watson Wyatt Superannuation Pty Ltd [2007] NSWSC 905 where it was said there was no doubt, in accordance with the authorities that the Court may proceed to make a determination of the insured claim if it strikes down a determination of it by the insurer. There are a number of other authorities to this effect.

7          The defendant’s are advancing the somewhat strange proposition that the claim against the first defendant should be remitted back to it whilst the claim against the second defendant is put “on hold”. Whether the Court should proceed to determine a claim against a trustee or remit it depends upon all the circumstances – see Meat Industries Superannuation Fund Ltd v Petrucelli (Nathan J, unreported 28 February 1992). The relevant circumstances include a consideration of whether there is no good reason to believe the trustee will determine the matter and discharge it in a proper manner, and this may include a consideration of whether no purpose would be served by such a remission because the trustee has so firmly and over so many years adhered to error in the face of a very clear case – see Dylan v Byrnes Philp (Bryson J, unreported NSWSC 4 July 1988). Another consideration is if there was only one conclusion that a reasonable person could have reached as to the decision so that reconsideration would be futile – see Baker v Local Government Superannuation Scheme [2007] NSWSC 1173. In the present case, findings justifying a determination by the Court include the fact that the overwhelming bulk of the medical reports demonstrated that the plaintiff is totally and permanent disabled, which necessarily involves a finding that there was an inadequate consideration of all the medical evidence; that the first defendant did not act properly and failed to exercise good faith; that the first defendant failed to give real and genuine consideration to the claim; and that no reasonable trustee could have arrived at the decision of rejection reached by the first defendant.

8          Further, remission to the first defendant would be a futile exercise in the present case as it, as trustee, has relied and would again rely upon the conclusion of the claim against the second defendant as insurer. The only relevant question is that of the liability of the insurer and, once that is determined, the claim against the trustee is either irrelevant or follows suit. Thus, both claims should be determined together.

9          In support of the proposition that it would be futile to remit the matter to the first defendant, reference is made to some of the assertions made by Mr Shepherd on behalf of the defendants at the earlier hearing. These include the following:

“It flows from the definition of TPD (total and permanent disablement) that the trustees’ duties are consummate upon the duties of the insurer…It did not consider and independently decide the questions which are in the TPD definition and within the sole purview of AXA (the insurer).”

“This is a case in which it is not…the opinion of the trustee – it is

the opinion of the insurer which must be examined.”

“The trustees’ role in this was a very small part.”
“…(the trustee) did not have to consider and independently decide

the questions which are in the TPD definition and within the sole
purview of AXA.”

“…the trustee is not required to express an opinion under the deed…this is a situation where it’s for the insurer to make the decisions.”

10        Thus, effectively, the trustee could not reach a decision in the absence of an opinion from the insurer. An effective referral back to the trustee is impossible.

11        There is no additional evidence which has come to light since the first defendant’s decision which assists in the face of the overwhelming medical opinion of total and permanent disablement. Dr Makohon effectively concluded total and permanent disablement. Dr Tan concluded that it would be exceedingly difficult for the plaintiff to return to the workforce. Dr Sutcliffe expressed the view that the plaintiff was permanently and totally unfit, and, in so finding, applied the policy definition. Dr Synnott, on behalf of the defendant, has provided a further report without the benefit of a consultation, but expected no change. Dr Kevat, having previously reported that the plaintiff was psychologically handicapped and unable to do any work, recommended that a further psychiatric opinion be obtained. He stated that, on physical factors alone, it was difficult to conclude that the plaintiff would be unable to ever engage in gainful employment, but did not express the view that the plaintiff was not disabled by reason of psychological factors. These reports do not assist the defendant or require a remission. In any event, further material is irrelevant to the question of whether there should be a remission, which question should focus upon the first defendant’s management and determination of the claim. If that is found wanting, the Court then proceeds to determine the matter and may then consider further material, but such material is irrelevant prior to that time.

12        Furthermore, the disability definition in the trust deed should be considered. It provides for reliance upon the opinion of the insurer. The insurer’s conclusion has been vitiated, in the absence of a valid decision, the first defendant as trustee could not proceed and reach a decision.

13        In summary, no real argument was advanced by the defendants to justify the Court not proceeding to a hearing in respect of a claim against the second defendant insurer, although the plaintiff contends that the Court should proceed to determine the claim against both defendants. The plaintiff is entitled to a determination of the claims rather than following the circuitous path proposed by the defendants of issuing further proceedings to challenge further decisions.

The submissions on behalf of the defendants

14        The submissions of Mr Shepherd on behalf of the defendants could be summarised as follows.

15        The medical reports obtained by the second defendant subsequent to the decision of 8 November 2006 were in evidence before the Court as at the date of the reasons for judgment, and such judgment was not confined to the material that was before the decision makers.

16        The course to be adopted is that the claim against the first defendant trustee should be remitted for consideration in terms of the judgment. That having been done, the Court should not proceed to make orders against the second defendant insurer that a sum be paid to the plaintiff or make a declaration against the first defendant on the basis of material that was not before it. It is not appropriate that an order be made against the second defendant for payment of the benefit given the existence of further evidence, and such a course could also give rise to the possibility of inconsistent decisions should the first defendant, in the proper exercise of its discretion find that the plaintiff is not entitled to the benefit.

17        The first defendant is entitled to reconsider the matter on the basis of all the medical reports and related material, including material obtained subsequent to the decision of 8 November 2006. The first defendant should not be denied an opportunity to exercise its discretion for the first time on the basis of all the material, including the further medical reports. The Court should not in effect sit as the trustee exercising its discretion for the first time on new material. Reference is made to the judgment of McLelland J in Rapa v Patience (unreported NSWSC, 4 April 1985). Further, the plaintiff failed to put all the material before the trustee and did not seek a right of review by the first defendant trustee of its decision.

18        It would also be inappropriate to determine the liability of the second defendant insurer without considering the medical reports and related material obtained subsequent to the decision of 8 November 2006. Remission to the first defendant should be ordered. There would be no prejudice to the plaintiff and potentially a saving in costs. The plaintiff can always make a further claim to the second defendant insurer on the basis of the further material and it can then make a further decision. The plaintiff could amend her claim and challenge any further decision by either defendant. Further, there is nothing to suggest that the first defendant trustee would not determine the matter and exercise its discretion in a proper manner. The Court cannot conclude that no reasonable person, applying the correct test to the further material before the trustee, could reach a different decision. The orders of the Court should be that the determination of the first defendant of 8 November 2006 is void and set aside, and the question of whether the plaintiff is and was entitled to the benefit in question is remitted to the first defendant for determination. It is repeated that it would not be futile to remit the matter to the first defendant, and one cannot necessarily assume what the outcome would in fact be. The existence of the further material makes this so.

Ruling
19	Having considered the submissions, I prefer those made on behalf of the plaintiff by Mr Riordan and Mr Hill.
20	Firstly, I am of the view that it would be a futile exercise to remit the plaintiff’s claim to the first defendant for further consideration. It is quite apparent, and has scarcely been disputed, that the primary decision maker is the second defendant insurer. I would refer to what was said at the original hearing by Mr Shepherd and to the extracts from the transcript as set out in paragraph 9 hereof.
21	To further underline the importance of the decision by the second defendant, the decision of the first defendant contained in its letter of 8 November 2006 referred to a review of all the evidence relevant to the claim, including the letter from the second defendant of 20 July 2006 in which it had advised of its decision to decline the claim. The letter of 8 November 2006 listed the evidence or material in question, but added nothing of substance to the decision of the second defendant as set out in its letter. As I stated in paragraph 82 of my judgment of 11 September 2009:

“As has been stated, the focus in this dispute has been primarily upon the decision taken by the second defendant. That was then relayed to the first defendant. The first defendant, whilst not “rubber stamping” same, effectively agreed with it without adding additional reasons.”

22        In the following paragraph I stated:

“Given that no additional reasons of substance were advanced by the first defendant, it seems to me that, if the decision of the second defendant can be impugned successfully, the same result must apply in relation to the first defendant.”

23        That the first defendant added nothing of substance to the decision of the second defendant is fully understandable when it is appreciated that both are effectively dealing with the same definition of total and permanent disablement, which is set out in the relevant policy of the second defendant and which has been adopted by the trust deed. As Mr Shepherd very properly pointed out, “It (the definition) is from the policy … which is picked up by the trust deed, so it might as well be … in the trust deed” – see transcript p.151. That definition, which is set out in paragraph 5 of my original judgment, contains words such as “in National Mutual’s opinion” and “After considering medical and other evidence satisfactory to National Mutual”.

24        All of this lends strength and support to the submissions of Mr Riordan and Mr Hill that the first defendant effectively can do nothing without a decision of the second defendant; that the decision of the second defendant has been successfully impugned; and that therefore remitting the claim for further consideration by the first defendant is futile.

25        I am certainly persuaded that it is the decision of the second defendant which is paramount. It seems to me that remitting the matter to the first defendant, whilst putting the claim as against the second defendant “on hold”, runs the very real risk of achieving absolutely nothing, or at best is a very circuitous way in which to tackle determination of the claim. I agree with the submissions of Mr Riordan and Mr Hill in this regard.

26        In addition, I agree with the submissions of Mr Riordan and Mr Hill to the effect that, in any event, the matter should not be remitted for consideration by the first defendant given what has already occurred. I have found that the first defendant arrived at a decision at which no reasonable trustee acting properly could have arrived. This is apart from the fact that it did little more that merely adopt the decision of the second defendant.

27        I would refer to the approach adopted by McDougall J in Baker as follows:

“The general rule is that when a trustee's decision is fundamentally flawed, it is in law no decision at all. In normal circumstances the court will not itself exercise the discretion, but will remit the matter to the trustee to be considered on a proper basis. See Bryson J in Sayseng at [73]. However, I think, that cannot be the case where (as I have found) no reasonable person, applying the correct test to the material before the Trustee, could have reached the conclusion that the Trustee did. In those circumstances, reconsideration would be futile.”

28        I would also refer to the judgment of Byrne J in Flegeltaub v Testra Super Pty Ltd [2000] VSC 107 where His Honour, having concluded that the trustee had not validly determined the application for benefits, described the choice available to him as being between remitting the question to the trustee for its consideration or to determine it himself after hearing further evidence or by decision on the material as it then stood. Due to the fact that a period in excess of five years had elapsed since the decision of the trustees, and given that circumstances might have changed, His Honour opted to remit the matter to the trustee. His Honour went on to say:

“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 or where the material before the trustee was such that there could be no debate about the entitlement of the claimant.”

29        His Honour also referred to the decision in Rapa where it was said that: “ … the Court may in a proper case execute the trust by

substituting its own discretion for that of trustees … ”

30        It was considered in Rapa that a proper case would be where at the very least it is established that the existing trustees are unlikely to fulfil the relevant duty in a proper manner.

31        In the present case, and as stated, I have found that no reasonable trustee acting properly could have provided the decision at which the first defendant arrived. Of course, that decision effectively adopted what the second defendant had already decided. I could not be confident in the slightest that the first defendant would be likely to fulfil its relevant duty in a proper manner given what it has already decided, and particularly bearing in mind that it is not the primary decision maker. The decision of the second defendant has been vitiated and, bearing in mind all the matters which I have set out above, I consider it highly unlikely that, absent the decision of the second defendant which is a virtual prerequisite, the first defendant can or will discharge its duty in a proper manner. In any event, having regard to the role of the second defendant and the practical problems that could be caused, I am of the view that it is both undesirable and impractical to remit the claim to the first defendant whilst putting the claim as against the second defendant “on hold”. I am not faced with a situation such as that with which Byrne J had to deal in Flegeltaub when he considered the options and selected remission. Indeed, it seems to me that that remission could well result in an artificial and unnecessary prolongation of the claim due to the circuitous route which it then might have to take.

32        In summary, I am against the argument that the claim as against the first defendant should be remitted.

33        Given that ruling, it is obvious that I am also against the proposition that the claim as against the second defendant should not be dealt with by the Court as soon as possible. Mr Reardon and Mr Hill referred me to the judgment of Hamilton J in Oberlechner where His Honour stated:

“There is no doubt on the authorities that the Court may proceed to make a determination of the insured’s claim, if it strikes down a determination of it by the insurer.”

34        That is the approach which I intend to adopt. It seems to me that, if there is no remission of the claim against the first defendant, there is nothing standing in the way of the Court determining the claim against the second defendant.

35        I would also make this general observation. In many of the authorities to which I have been referred, there has only been one defendant, and in a large number of those that defendant is the trustee. In the present, there are two defendants but the relationship between them is close. Further, they have the same representation. The manner in which they deal with claims has already been described. What is required and desirable is a determination or judgment in respect of the decision of the paramount decision maker. Given all that has been said, that judgment or determination would clearly have some influence upon the course adopted by what could be described as the secondary decision maker.

36        In the circumstances, it seems to me that the claim should, as against both defendants, proceed to a determination by the Court. I can see no reason for having separate trials as against each defendant, and indeed this would seem to me to be a most undesirable and unsatisfactory course to follow.

37        In Flegeltaub Byrne J referred to one of the options available as being a determination by the Court on the basis of the material “as it now stands”. As I understand it, that is the course which the parties would prefer to adopt, so that the hearing would proceed on the basis of the material that was before the defendants at the time of making their decision, together with the further medical reports to which reference has been made. I would refer to p.162 of the transcript. I am not suggesting that any binding agreement has been reached in this regard, but I understand that to be the preferred course of action.

38        I shall hear the parties further as to the future conduct of this case.

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