McKenzie v Commonwealth Superannuation Corporation

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FEDERAL COURT OF AUSTRALIA

McKenzie v Commonwealth Superannuation Corporation [2023] FCA 396 

File number: NSD 670 of 2021
Judgment of: PERRY J
Date of judgment: 2 May 2023
Catchwords:

STATUTORY INTERPRETATION – Defence Force Retirement and Death Benefits Act 1973 (Cth) – construction of the terms “on” and “after” in s 24(3)(b) of the Defence Force Retirement and Death Benefits Act – whether election for commutation has the effect of permanently reducing a member’s entitlement to retirement pay or whether election results in a reduction in retirement pay only until the member has reached the age on which her or his expectation of life factor in sch 3 of the Defence Force Retirement and Death Benefits Act was based – discussion of approaches to statutory construction – where ordinary meaning of text is clear and supported by context – where applicant sought to rely on extrinsic materials to displace otherwise clear meaning of statutory text – whether s 24(3)(b) is subject to a requirement of proportionality – application dismissed

Legislation

Acts Interpretation Act 1901 (Cth) s 15AA

Defence Force Retirement and Death Benefits Act 1973 (Cth) ss 23(1), 23(2), 23(3), 24(1), 24(1AA), 24(2), 24(2A), 24(2B), 24(3)(a), 24(3)(b), 25, 39(1), 41, 42(3), 43(3), 75, schs 1 and 3

Defence Forces Retirement Benefits Act 1948 (Cth)

Defence Force Retirement and Death Benefits Bill (Cth)

Interpretation Act 1987 (NSW) s 33
Cases cited:

­­­­Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; 239 CLR 27

Certain Lloyd’s Underwriters v Cross [2012] HCA 56; 248 CLR 378

CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; 187 CLR 384

Commissioner of Taxation v Douglas [2020] FCAFC 220

Construction, Forestry, Maritime, Mining and Energy Union v Australian Building and Construction Commissioner  [2020] FCAFC 192; 282 FCR 1

Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 250 CLR 503

Mills v Meeking [1990] HCA 6; 169 CLR 214

New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act [2016] HCA 50; 260 CLR 232

Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355

 R v A2 [2019] HCA 35; 373 ALR 214

SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; 262 CLR 362

 Taylor v Owners — Strata Plan No 1564 [2014] HCA 9; 253 CLR 531

Vincentia MC Pharmacy Pty Ltd v Australian Community Pharmacy Authority [2020] FCAFC 163; 280 FCR 397
Division: General Division
Registry: New South Wales
National Practice Area: Administrative and Constitutional Law and Human Rights
Number of paragraphs: 69
Date of last submission/s: 22 October 2021
Date of hearing: 11 May 2022
Counsel for the Applicant The Applicant appeared in person
Counsel for the Respondent Mr David Robertson
Solicitor for the Respondent Australian Government Solicitor

ORDERS

NSD 670 of 2021
BETWEEN:

CLINTON EARL MCKENZIE

Applicant
AND:

COMMONWEALTH SUPERANNUATION CORPORATION

Respondent

ORDER MADE BY:

PERRY J

DATE OF…

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Details
Case
[2023] FCA 396
Decision Date

CaseChat Overview and Summary

In the Federal Court, Mr McKenzie challenged the Commonwealth Superannuation Corporation's interpretation of s 24(3)(b) of the Defence Force Retirement and Death Benefits Act 1973 (Cth) (DFR Act). The issue was whether an election for commutation permanently reduces a member's entitlement to retirement pay, or only until the member reaches the age on which their expectation of life factor was based. The court was required to determine the meaning of the statutory language "on and after" in s 24(3)(b) of the DFR Act, and whether this section is subject to a requirement of proportionality.

The court held that the ordinary meaning of the statutory text was clear and supported by the context, and there was no basis for reading an implied temporal limitation into s 24(3)(b). The court rejected Mr McKenzie's reliance on extrinsic materials to displace the otherwise clear meaning of the statutory text. The court found that the reduction in retirement pay following a commutation election was permanent, and not subject to a requirement of proportionality. The court held that the remedy for any unfairness in the scheme lay with the Parliament, not the court.

The originating application was dismissed, and the court reserved the question of costs to allow the parties to file submissions if necessary. The court noted that the case potentially affected a large number of veterans and may be a matter of public importance, which could be a significant factor in determining the appropriate order as to costs.

Orders

Orders of the court

1. The originating application filed on 12 July 2021 is dismissed.

2. On or before 4pm on 9 May 2023, the respondent is to indicate to the Court and the applicant whether it seeks an order for costs in its favour.

3. In the event that the respondent seeks an order for costs in its favour:

(a) on or before 4pm on 12 May 2023, the respondent is to file and serve submissions in support of an order for costs, which submissions are not to exceed 5 pages in length and are to explain in plain English the relevant principles by reference to authority with pinpoint citations;

(b) on or before 4pm on 19 May 2023, the applicant is to file and serve any submissions in response, which submissions are not to exceed 5 pages in length;

(c) on or before 4pm on Wednesday 24 May 2023, the respondent is to file and serve any submissions in reply, which submissions are not to exceed 3 pages in length; and

(d) the question of costs is to be determined on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Schedule 3 of the DFR Act, to which s 24(3)(b) makes reference, relates to an expectation of life factor. That expectation of life factor is based on the age (in years) of the member on the date of their election for commutation. 3. FACTUAL BACKGROUND The factual background in this matter is agreed and is summarised by the parties in the statement of agreed issues and facts filed on 1 October 2021. The general administration of the DFR Act was entrusted to the Defence Force Retirement and Death Benefits Authority (DFR Authority) until 30 June 2011. From 1 July 2011, Part II of the DFR Act was repealed, the DFR Authority was abolished, and the functions of the DFR Authority were assumed by the respondent. Mr McKenzie served as a member of the ADF for a period which slightly exceeded 20 years, from January 1976 to January 1996, at which time he retired from the ADF. During his time in service with the ADF, Mr McKenzie was a member of, and made contributions to, the scheme established by the DFR Act for the provision of, among other benefits, retirement pay to ADF members. As at the date of his retirement from the ADF, Mr McKenzie was 35 years of age and had an annual salary of $44,666. Accordingly, pursuant to s 23(2) and sch 1 of the DFR Act, on and from January 1996 Mr McKenzie would ordinarily have been entitled to an annual retirement pay of $15,633.10, being 35% of his annual salary of $44,666. However, before he retired, Mr McKenzie completed an “Election for Commutation” form dated 6 December 1995, applying to commute the maximum entitlement of his retirement pay pursuant to s 24 of the DFR Act. A copy of the completed election form appears at annexure B to the affidavit of Matthew Jianwen Tan affirmed on 5 November 2021. I note that there was no evidence before me which indicated that Mr McKenzie had been directed to read any explanatory materials before signing that form. Nor had Mr McKenzie, in his completed election form, ticked the box indicating that he had “read the explanatory notes” related to his election for commutation. Furthermore, on 27 May 2021, the respondent notified Mr McKenzie that it was “extremely regrettable” that the nature of his commutation election “was not made clearer to you, upon retirement from the Australian Defence Force”. It therefore appears that Mr McKenzie was unfortunately not informed about the consequences of his commutation decision as to the value of his annual retirement benefit. However, no issue relating to whether Mr McKenzie was properly informed about the consequences of his commutation decision was raised in the present proceeding. As at the time of his election and retirement, the maximum amount of retirement pay which a member could commute was determined by ss 24(2A) and (2B) of the DFR Act. Pursuant to the formula specified in s 24(2B) of the DFR Act, Mr McKenzie was authorised to elect to commute up to 4.65 times his annual amount of retirement pay. As the applicant’s annual amount of retirement pay was $15,633.10, Mr McKenzie was therefore entitled to and applied for a lump sum payment of $72,693.92 on the day on which the election took place: ss 24(1) and 24(3)(a) of the DFR Act.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

For the reasons already given, construed according to its ordinary meaning, s 24(3)(b) provides that an election for commutation has the effect of permanently reducing that member’s applicable retirement pay. That ordinary meaning is consistent with the language and structure of the Act viewed as a whole which, applying established principles, is the surest guide to legislative intent. By contrast, the temporal limitation which the applicant seeks to write into s 24(3)(b) has no foothold in the language and structure of the DFR Act. Even if, therefore, the authors of the Jess Report had some other consequence in mind with respect to an election to commute, their recommendations cannot overcome those otherwise clear textual and contextual considerations. To reiterate the words of French CJ and Hayne J in Certain Lloyd’s Underwriters at [25] in the passage earlier quoted, “[t]he purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted.”5. CONCLUSION AND COSTS As I have earlier observed, the circumstances surrounding Mr McKenzie’s application before this Court are unfortunate in that it does not appear that Mr McKenzie was properly informed about the consequences of his election for commutation. Rather, upon his retirement, Mr McKenzie appears to have believed that his election for commutation would have no, or at least no permanent, effect upon his annual retirement benefits. However, the task before this Court is limited to the question of statutory construction. For the reasons given above, the respondent’s construction of the DFR Act plainly accords with the text and structure of the Act. The remedy for any unfairness in the scheme of the kind identified by Mr McKenzie lies in the hands of the Parliament. The originating application is therefore dismissed. Finally, I note that the respondent sought an order for costs in this proceeding. Mr McKenzie’s written submissions did not address that question. At this stage, I will reserve the question of costs in order to allow the parties, if necessary, to file submissions with respect to their respective positions. However, the fact that this case apparently raises a matter of public importance which potentially affects a large number matters of veterans may well be a significant factor in determining the appropriate order as to costs.

Ratio Decidendi

Legal Principle Established

Subsequently, on 5 July 2021, the applicant commenced these proceedings challenging the Corporation’s decision made on 27 May 2021.4. CONSIDERATION4.1 The issues By a statement of agreed issues and facts, the parties identified two issues in dispute. The first was whether an election for commutation had any effect at all on the annual amount of retirement pay to which a person was otherwise entitled under s 23 of the DFR Act. However, Mr McKenzie ultimately did not press this issue at trial, rightly conceding that, by virtue of s 24 of the DFR Act, an election for commutation had the effect of reducing a proportion of a member’s retirement pay to which they were otherwise entitled. The second and sole remaining issue is whether, on a proper construction of s 24(3)(b) of the DFR Act, the reduction in annual amounts of retirement pay payable to a commuting member is permanent, or ceases when she or he reaches the age on which the applicable expectation of life factor in sch 3 of the DFR Act is based.4.2 The parties’ submissions As earlier set out, s 24(3)(b) of the DFR Act provides that, following a commutation election, a recipient member’s retirement pay is reduced “on and after the day on which the election takes effect”. In essence, Mr McKenzie submitted that the words “on and after” in ss 23 and 24 of the DFR Act should be construed as having an implied temporal constraint, so as to not apply once a member has lived beyond the applicable expectation of life factor in sch 3 of the DFR Act. In other words, according to Mr McKenzie, s 24(3)(b) of the DFR Act reduces a member’s retirement pay only until they reach their expectation of life factor, at which point the member’s retirement pay should restore to its full amount. This construction, in Mr McKenzie’s submission, would best give effect to the purpose of the DFR Act. Referring to a range of extrinsic materials, Mr McKenzie submitted that the primary purpose of the DFR Act was to act as “beneficial” legislation: that is, to establish a retirement scheme which created a “substantial inducement to become and remain a member of the ADF”. Any construction of the DFR Act which allowed for the permanent reduction of a member’s retirement pay following a commutation election was, in Mr McKenzie’s submission, inconsistent with this purpose. Instead, he argued that his interpretation of the DFR Act, in which the reduction in a commuting member’s annual retirement pay is made only until the member reaches the age on which their expectation of life factor is based, harmonises the language of s 24(3)(b) of the DFR Act with the broader context, purpose and policy of the legislation. The respondent, however, submitted that ss 23 and 24 provide, in clear and unambiguous terms, that an election to commute has the effect of permanently reducing the member’s retirement pay, irrespective of whether the member lives beyond the age upon which the expectation of life factor applicable to her or him is based. In the respondent’s submission, neither the text of the DFR Act nor contextual considerations, including purpose, support the applicant’s construction of s 24(3)(b) of the Act. Rather the respondent contends that Mr McKenzie’s arguments ultimately reduce to a complaint about the alleged unfairness of the DFR Scheme itself which this Court has no power to amend. In the respondent’s submission, the means of addressing any such unfairness lies exclusively with the Parliament.4.3 Relevant principles of statutory interpretation