Mercer Superannuation (Australia) Limited v Billinghurst
[2018] HCATrans 98
[2018] HCATrans 098
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M3 of 2018
B e t w e e n -
MERCER SUPERANNUATION (AUSTRALIA) LIMITED
Applicant
and
MICHAEL BILLINGHURST
Respondent
Application for special leave to appeal
NETTLE J
GORDON J
TRANSCRIPT OF PROCEEDINGS
AT MELBOURNE ON FRIDAY, 18 MAY 2018, AT 10.31 AM
Copyright in the High Court of Australia
MR R.P. AUSTIN: May it please the Court, I appear with my learned friend, MR N. MIRZAI, for the applicant. (instructed by Herbert Smith Freehills)
MR M.W. WISE, QC: If the Court pleases, I appear with my learned friend, MR H.L. REDD, on behalf of the respondents. (instructed by Greenfields Financial Services Lawyers)
NETTLE J: Yes, Mr Austin.
MR AUSTIN: Your Honour, the applicant submits that the judgments below involved questions of law that are of public importance for the purposes of section 35A of the Judiciary Act, not only because the questions we say have general application within the superannuation industry but also that they are “otherwise of public importance”, as the judgments below have created uncertainty for trustees, employers and actuaries concerning their relationships with one another in professional and business activities.
The application for special leave, which is in the appeal book at page 145, paragraphs 3 to 5, articulates three special leave questions. If it pleases the Court, I will take the Court to those three but I will alter the sequence by taking the third before the second.
GORDON J: Before you do that, do you accept you have to, in effect, get up on all three before you would get special leave?
MR AUSTIN: No, your Honour. I think we would say that there are points of law that arise in relation to each of the second and third. The first is principally a construction point which is a threshold to the other two but we say that the issues that are raised in the course of that question of construction do not depend on the bespoke terms of the particular rules of the superannuation plan but the way the majority in the Full Federal Court have expressed their views turn upon broader considerations which are the basis for the applicant’s concern.
Your Honours, the first question is whether, upon termination of a superannuation plan and in the absence of binding undertakings, an employer may come under a legal obligation to make contributions beyond the limits of the governing rules of the plan. If the answer to the question is affirmative, the employer has an unquantifiable future and contingent obligation for which it cannot budget or account. If the terms of the rules of the plan can be overridden by a general principle, the question is one of public importance having a general application.
Your Honours, it has been suggested by the respondents that we provide the Court, for convenience, with copies of the relevant designated rules. They are in the application book in the judgment of Justice Moshinsky, but it might be easier for your Honours to have a set of the rules to refer to today.
NETTLE J: Yes, thank you.
MR AUSTIN: I hand up two copies.
NETTLE J: Mr Austin, will it not always depend upon the terms of the particular deed whether there is that obligation on the employer to continue to fund in the way that you contend is unacceptable? I am looking, as it were, for question of general principle as opposed to construction really of the deed the subject of this matter. Why is it that it would not always turn upon the construction of the particular deed in question?
MR AUSTIN: With respect, we agree with your Honour’s proposition but that is not the way we read the judgment of the majority in the Full Federal Court.
NETTLE J: It could never go further, could it, than the matter that was before them? Despite whatever obiter dicta may have been pronounced, the ratio is that upon this deed there was that obligation.
MR AUSTIN: Your Honour, the concern is that the reasoning of the Full Federal Court in the majority is expressed in terms of cascading principles and while it may be that one principle or another is strictly obiter dictum, when the Full Federal Court pronounces this the industry has to listen and we say that that has presented some real difficulty for the industry which needs to be clarified.
GORDON J: But it starts with the deed. Paragraph 2 is the deed, is it not?
MR AUSTIN: Sorry, paragraph 2 of?
GORDON J: Of the reasons for judgment of Justices Flick and Kerr. There can be no doubt that the focus of this judgment is the precise deed itself.
MR AUSTIN: Yes, your Honour. Can I take your Honours particularly to the reasoning of their Honours at paragraph 54 of their judgment, which your Honours will find in the application book at page 126, where their Honours say:
However, even assuming that Grosvenor’s letter must be construed as the immediate exercise of its termination rights under Designated Rule 16.5 –
Your Honours, may I interpolate here that it is my submission, with the greatest respect, that their Honours have confused two associated rights. There is no termination right in the designated rules for the employer. What there is in clause 9.5 of the rules is a right to terminate the obligation to make contributions and that can be exercised to terminate that obligation immediately.
All I can say, your Honour, and I hesitate to do so, is that the majority was confused on this point and talked about termination rights that do not exist, meaning to talk about another right, which is a right to terminate contributions. In any event, we take paragraph 54 as meaning that even if they are wrong about the interpretation of the deed, it is far from self‑evident that the consequences that Grosvenor, the employer, would have no legal liability to make any additional contribution and so on. Then they carry through that reasoning with what we have talked about in our written submissions in reply as cascading reasons. They come to the proposition in paragraph 62:
And even if all of that is wrong, we see no reason to apprehend why a Trustee of a superannuation fund subject to the covenants imported by s 52(2) of the Supervision Act would not, at least, have been obliged to ask Grosvenor to make an additional voluntary contribution to allow it to commute Mr Billinghurst’s pension entitlements to a lump sum if the funds available both from the redemption of units attributable to the plan and the additional contribution Grosvenor had committed to make in November 2011 were insufficient for that purpose.
NETTLE J: A moderately anodyne proposition, one might have thought.
MR AUSTIN: Well, with respect, your Honour, it depends how their Honours are interpreting section 52(2). What they are saying is that, notwithstanding the fact that the obligation to make contributions has been terminated on the construction of the letter of November 2011, which is preferred by Justice Pagone in the minority judgment, notwithstanding that, it is open because of the covenants imported by section 52(2) - and I think they have particularly in mind the best interests covenant and the priority covenant, which by the way did not apply at that stage - what they are saying is that notwithstanding that one might take the interpretation that Justice Pagone took, nonetheless the best interests covenant and perhaps the other covenant, if it were applicable, would come in over the top of the terms of the trust instrument and produce a different outcome.
GORDON J: I speak mainly for myself but I think the difficulty is that you have to deal with, do you not, up front the fact that the judgment in effect puts you away on the construction of the letter, but do you seek to uphold Justice Pagone’s construction?
MR AUSTIN: Yes, we do, your Honour, and we would invite the Court to proceed on the basis that that is our submission, but what we say is that ‑ ‑ ‑
GORDON J: So why are Justices Flick and Kerr wrong?
MR AUSTIN: Because what they want to say is that if Justice Pagone’s interpretation is right, nevertheless the best interests obligation in particular will prevail to impose obligations on the trustee.
NETTLE J: But why are they wrong about the construction? Why is it correct to say that Justice Pagone was accurate and they were not?
MR AUSTIN: Perhaps I should take your Honours to the rules first?
NETTLE J: Certainly.
MR AUSTIN: That might be the most helpful way. Your Honour, in the present case, the consolidated rules distinguish between three related concepts. The first is an employer ceasing participation in a plan which is governed by rule 3.3. Can I just very quickly take your Honours to that?
NETTLE J: Yes.
MR AUSTIN: Rule 3.3 says that:
(a)An Employer:
(i)automatically ceases to participate in a Plan if:
. . .
(B)rule 16 does not apply but that Employer ceases to carry on business for any reason.
I do not think it is disputed that the November letter informs the trustee - it is a letter from the employer - it informs the trustee that on 31 December 2011 it is intended that the business would cease and the letter specifically refers to the provision I have just taken your Honours to. So that is all about ceasing participation. The second concept is of an employer giving notice to terminate, reduce or suspend employer contributions. Your Honour will find that in clause 9.5 of the consolidated designated rules, which reads:
An Employer may terminate, reduce or suspend its obligation (or agreement) to contribute in respect of some or all Members by giving notice to the Trustee. The termination –
takes effect:
(b) from the date of receipt of the notice -
Quite a peremptory right, your Honours might think, but it is very clear. Then the third concept in the rules is termination of the plan. Termination of the plan arises under clause 16 of the consolidated designated rules. The trustee has a power to terminate the plan at any time after giving reasonable notice under clause 16.1 and 16.2 refers to other circumstances:
The Trustee must terminate a Plan –
this is not a SmartSuper Plan:
if:
. . .
(b)all Employers have ceased to participate in the Plan under rule 3.3 and sub‑rule (d) also applies -
Subrule (d):
the Participant has ceased to participate in the Plan and no Employer is willing to act as Participant.
That is satisfied. So your Honour will see that it is an act of the trustee to terminate a plan; it is not a right of the employer. Your Honours, I should now take you quickly to the November letter, which your Honours will find in the appeal book at page 53, starting at the bottom of the page. If it pleases the Court, I will simply highlight some appropriate bits of it. At the top of page 54, there is a reference to GAAMPL, which is the employer and also the participant – there was no extra employer – and it says:
As a result of the cessation of business and the fact that no other entity will succeed to the business of GAAMPL, it is understood that GAAMPL will automatically cease to participate in the Plan in accordance with rule 3.3(a)(i)(B) –
the provision I took your Honours to and then the letter goes on to advise of the employer’s intentions and at paragraph 5) at the bottom of page 54 of the application book the letter says:
For ease of calculations, with the exception of the additional contribution required to make up any funding shortfall, GAAMPL will cease to make employer superannuation contributions to the Plan with immediate effect.
Now, it is true that there is no reference there to clause 9.5 but, with respect, no such reference is needed. The words are crystal clear and that was the view that Justice Pagone took dissenting.
GORDON J: Well, the question of construction is whether immediate effect tied back to 31 December, at the top of page 54.
MR AUSTIN: Well, with respect, your Honour, the words “immediate effect” are clear. The letter was written on 15 November and “immediate effect” means at that time. The letter ‑ ‑ ‑
GORDON J: It is an odd position, is it not, that you do not cease business until 31 December but you stop contributions six weeks earlier.
MR AUSTIN: That is the effect of the rules, your Honour. That was the view taken by Justice Pagone and Justice Moshinsky at first instance in the appeal from the Complaints Tribunal adopted a different form of reasoning. Let me take your Honour to that as well. Justice Moshinsky, at pages 87 to 88 of the application book and paragraph 94 of his Honour’s judgment said that:
Given the qualifications, and in the absence of specific reference to rule 9.5 of the Designated Rules, it is unclear whether this constituted notice of termination of the Employer’s obligation to contribute under rule 9.5 -
With respect, the absence of express reference to clause 9.5 does not render ambiguous the plain language of the letter. We adhere to that submission and there was only one qualification made, which appears in the next sentence of the letter, namely that notwithstanding the termination of contributions immediately, the employer confirmed that it would make a payment to the trustee in respect of any shortfall.
That qualification we say has no effect on the meaning of the words of the rest of that sentence. Although a registrable superannuation entity has special characteristics, it is the RSE licensee and trustee of the assets of the plan and as such it is subject to what this Court has described as the most important duty of a trustee, which is the duty to obey the terms of the trust. That is a reference to the observations of the Court in Youyang v Minter Ellison Morris Fletcher, which is referred to in our submission. The Court also referred to the “rigour of the rule” and to the observation of Augustine Birrell QC:
that it is the duty of a trustee “to adhere to the terms of his trust in all things great and small –
I suspect that might have been Justice Gummow’s contribution, your Honours. Correspondingly, the rights and entitlements of the beneficiaries of that trust are established and circumscribed by the trust instrument. In this case, the trust instrument includes the designated rules. If, according to the rules, the obligation of the employer has been terminated, the members have no right to receive the benefit of any further contributions and the trustee has no obligation to seek further contributions from the employer.
The resolution of the question whether the November letter terminated the employer’s obligation to make contributions would be an important step in deciding an appeal from the decision of the Full Federal Court but this Court would need to address further aspects of the majority judgment in the Full Federal Court in light of its decision on the question of construction. That is because, as I have said, the majority judgment adopts a cascading reasoning, which is identified, in our submission, in the application book page 182 at paragraph 6, according to which, if one reason expressed by their Honours were wrong, then they would fall back on a different reason to reach the same conclusion.
Thus, in application book 126 at paragraph 4, which I have taken your Honours to – I will not take your Honours through that again because I have referred to paragraphs 54 and 62 of their Honours’ judgment to indicate what part of the problem is.
Their Honours also referred uncritically to the Tribunal’s reliance on the statutory covenants. The Tribunal made no reference to any qualification in the trust instrument and relied on the statutory covenants at application book 119 in their paragraphs 23 to 24.
We say the structure of the majority’s reasoning means that their decision does not rest on a particular construction of bespoke language, that the judgment as a whole embraces some more general principles which are the basis potentially and in fact for concern about the ability of the trustee and employer in particular to administer a superannuation plan by reference to the rules without any overriding duty that might be imposed on them notwithstanding the rules.
Your Honours, may I turn to the third question in our questions for consideration and that is whether the application of the statutory best interests covenant to a superannuation trustee’s decisions with respect to termination of the plan is a matter of law, limited or framed by the terms of the governing rules of the plan.
The Tribunal found that the trustee did not apply the correct test in determining the respondent’s lump sum equivalent of his pension. The Tribunal found that the trustee had applied a “fair and reasonable test”. That is the language of the Superannuation Complaints Act which the Tribunal has to apply. The Tribunal said that the fair and reasonable test was not the appropriate test for the trustee to apply ‑ that is in the application book page 24, in paragraph 79 of the Tribunal’s reasoning.
Pursuant to the best interests covenant in section 52(2)(c) of the Superannuation Industry (Supervision) Act – your Honours, I will not be able to resist calling it “the SIS Act”, it is ingrained into my psyche.
NETTLE J: Of course.
MR AUSTIN: Pursuant to that provision of the SIS Act, the trustee was required to act in the best interests of the beneficiaries in making its calculations as well as complying with the statutory covenants – for example, instil care and diligence and giving priority to the interests of the beneficiaries in the case.
NETTLE J: Mr Austin, I see you are out of time. Is there any final point you wish to make?
MR AUSTIN: Yes, your Honours. We say in summary that in relation to that question, the majority of the –may I simply refer, on the best interests question and the concern that we have, refer your Honours to the submission in reply at application book 181, paragraphs 5 and following, which we embrace and reassert. As to the second question, which is in some ways the most important about the plan actuary’s fiduciary responsibilities and the way that was handled, would your Honours be prepared to give me another five minutes.
NETTLE J: We will see what Mr Wise has to say on the subject. You might be able to deal with it in reply.
MR AUSTIN: Thank you, your Honour. May it please the Court.
NETTLE J: Yes, Mr Wise.
MR WISE: If the Court pleases. It seems to us that there are two essential points that our learned friends seek to advance. The first point is that the trial judge and the majority were wrong to have held the trustee’s decision on the valuation of Mr Billinghurst’s pension miscarried – I will use that word – by reason of the conflicted advice given by the plan actuary.
They say that this is so because the governing rules, on their case, authorised the plan actuary to take account of the employer’s position. I will take your Honours in due course to the rules that they assert authorised the plan actuary to do so. Your Honours, I note the lights have not been reset. Thank you.
NETTLE J: You got a bonus there, Mr Wise.
MR WISE: I did, your Honour.
GORDON J: So is your position that, assume for the moment that the rules ever did permit that interaction, there are still problems - as I understand your submission?
MR WISE: Yes. First of all, we say that the conflict rules are perfectly clear and there is nothing for this Court that is unsettled in dealing with the question of how a conflict might apply in respect of noting that it is the plan actuary who was in the conflict, not the trustee. That then becomes transferred to the trustee because the trustee needs to give real and genuine consideration.
GORDON J: There is no evidence of that having occurred?
MR WISE: No. Our short point on the conflict is twofold or two short points. The first point is that the rules, when you look at the four rules that our learned friend has nominated, do not indicate any such structural conflict. Secondly, the law is settled on what one does with a conflict. In Breen v Williams, Justices Toohey and Dawson said this:
Equity requires that a person under a fiduciary obligation should not put himself or herself in a position where interest and duty conflict or, if conflict is unavoidable, should resolve it in favour of duty and, except by special arrangement, should not make a profit out of the position.
So in the end, if there is a conflict for the plan actuary which becomes picked up, if you like, by the trustee, they need to resolve it in favour of duty – that is that. There is nothing really for this Court to give further consideration to.
The issue further arose in two English decisions relating to superannuation, which concerned the fact that there was a structural conflict inbuilt. Those two cases are, just for completeness, Edge v Pensions Ombudsman [1998] Ch 512, and the antecedent case Re Drexel Burnham Lambert Pension Plan [1995] 1 WLR 32. In both of those cases you have a trust deed which is required to have member directors or trustees. The consequence is they stand in a position of conflict. The court effectively indicated that there is an exception, if you like, to the conflict rule in them acting and Breen v Williams would say, if you find yourself in such a position, you must privilege duty.
I just pause for one half a moment to deal with the section 52(2)(d) point. Our learned friends note that section 52(2)(d) was not in the Act at the time of the decision. They are correct; we accept that. The first point about that is it was entirely subsidiary to the court’s use of the section 52(2)(c) point ‑ that is, the best interests duty – and, second, the common law, as I have just indicated, Breen v Williams ‑ ‑ ‑
GORDON J: Reflected it.
MR WISE: To the same effect: you must privilege duty over interest. I wonder if I might very quickly take you to the four rules, just to dispatch this point finally. Our learned friends make reference to four rules that they say give rise to the inbuilt structural conflict, if you like. They say that that leads to the argument that the plan actuary acted in accordance with the deed in doing so. The first rule is 9.1(a)(i), which you have been taken to – in fact, you may not have been. This is the obligation on the employer to contribute:
Each Employer:
(i)must contribute:
(A)in the case of a DB Plan, at the rate determined by the Trustee, after consulting the Participant, on the advice of the Actuary to the Plan.
That does not indicate that the actuary is to advise the participant; rather, the advice of the actuary is to be given to the trustee and the trustee consults the participant. So there is no remit, if you like - or there is no inbuilt conflict that would call for the actuary to advise the participant, which is what occurred in this case. The second rule they rely upon is 3.3(b)(i)(A). This rule comes into play:
Where an employer ceases to participate in a Plan, the Trustee:
(i)must set aside in respect of each Member then employed by the Employer concerned . . .
(A)in the case of a DB Plan, the amounts the Actuary to the Plan determines have accrued in the Plan for the period up to the date of cessation of participation -
Again, there is nothing in there that might suggest some sort of conflicted advice or advice that might place the actuary in a position of conflict. The next rule is 9.6.
GORDON J: Just before you - some of those subparagraphs that follow on in that subrule may create some suggestions, at least consultation between the participant and the trustee, so if you look at subrule (ii) that follows on.
MR WISE: Yes, subrule (ii):
(unless the Participant and the Trustee agree otherwise) -
Yes, participant and trustee certainly consult under the rules, but what is said here ‑ ‑ ‑
GORDON J: I understand that – at least some interaction between.
MR WISE: Yes, we accept that.
GORDON J: Yes. They are not isolated silos.
MR WISE: That is true. We accept that, your Honour. Can I take your Honours to 9.6(b)(i), which our learned friends rely upon. Now, 9.6 follows on 9.5, which is the notice to terminate that my learned friend has taken you to. Our learned friend is correct: 9.5 is about an employer terminating, reducing or suspending:
its obligation (or agreement) to contribute in respect of some or all Members by giving notice to the Trustee.
Clause 9.6 says:
The Trustee may adjust contributions and benefits (in respect of the Members concerned), other than benefits which consist solely of Member Account –
that is, accumulation benefits, and they specifically refer to (b):
In the case of a DB Plan, the adjustment must be determined:
(i)after obtaining the advice of the Actuary to the Plan; and
(ii)ignoring any surplus in the Plan –
additional contributions that have been made. Again, there is nothing there that suggests consultation or advice that puts the actuary in conflict. While I am passing through, I want to deal with what is one of the fundamental points that Justice Nettle asked my learned friend about Justice Pagone’s decision and he seeks to uphold it. We say that Justice Pagone has misconstrued the effect of clause 9.5.
Pausing for a moment, 9.5 says you can terminate your obligations to contribute. The question is: contribute for what and for whom? We say that this clause only kicks in where the employer determines not to permit new members to join the plan and therefore it can reduce or terminate its contributions but we say it cannot possibly have the effect that Justice Pagone gives it, which is that, where the employer ceases to do so, they can refuse to make further contributions for obligations that have already been accrued.
In this case, for example, you have Mr Billinghurst, who has an accrued right to the pension, which is not fully funded because there is not enough money in the plan to pay them all out – we know that from the November letter. Justice Pagone, in one breath, says that this clause would not permit the employer to walk away from its obligations but that is precisely the effect that his Honour’s decision has.
He says the effect of giving this notice to cease contributions immediately means the trustee could not require the trustee to make any further contributions under clause 9.1(a)(i) or otherwise. We say that cannot be the effect of the rule and it is clear from clause 9.6, because 9.6 says, if the employer has given such a notice:
The Trustee may adjust contributions and benefits (in respect of the Members concerned), other than benefits which consist solely of Member Account Balances -
So in respect of defined benefits members, the trustee can adjust the contributions and benefits. So the proposition that 9.5 means the trustee cannot call for any further contributions must be wrong because 9.6 says:
The Trustee may adjust contributions ‑
required and that is because fundamentally 9.5 is about a plan that might be closed to new members but is otherwise continuing and 16 is about termination of the plan. I hope that is clear.
I will return now to the point about conflict that was sought to be relied upon by our learned friends in 9.6(b)(i) – I think I have referred your Honours to that already. The final rule they rely upon is clause 16.5 on page 57 of the document handed up:
On termination, the Trustee must redeem all of the Units attributable to that Plan and apply the Plan’s assets in the following order of priority -
So this says this is what the trustee is required to do on termination, as opposed to 9.5 and 9.6. They rely on (c)(ii):
paying to or in respect of the Members:
…
(ii)in the case of a DB Plan, the amount which the Actuary to the Plan determines has accrued in respect of the Members under the Plan during the period up to the Termination Date -
So that means the actuary has to do a calculation for each DB member to see how much has accrued to them up to that point because they are not yet retired and therefore do not have a fully accrued right to a pension, and that amount has to be paid. Again, the fact that the actuary is to carry out that process does not suggest any structural conflicted arrangement between those parties.
So to the extent that our learned friends say that what you actually have is a permissible conflict which is structurally inbuilt as a consequence of those rules, we say it is not correct and the consequence is that this whole argument about conflict must fall down, there is no error and, therefore, nothing to be dealt with.
The next point I want to make about this is, again, this is quintessentially about construction of this document, which is another reason not to grant leave, and finally I just want to note that if your Honours look at the submissions made to the Tribunal at 55 to 61, the submissions made to the primary judge at 116, and the submissions made to the Full Court, the majority at 15(a) and Justice Pagone at 85, no such arguments were put. The consequence is, when one looks at the reasons of the Full Court, there is no reasoning surrounding this idea of an inbuilt structural conflict. That is another reason not to grant leave.
I would like to move on to the second main point which is our learned friends say that the Full Court impermissibly utilised the best interests covenant in section 52(2)(c) to override the designated rules of the plan and to impose on the employer an obligation to contribute over and above those contained in the rules. So the bedrock issue here that this whole argument relies upon is whether the rules did in fact oblige the employer to contribute to the amount required to fund the lump sum required to commute Mr Billinghurst’s pension.
Justice Moshinsky and the Full Court each gave four different bases upon which the trustee could either require or seek from the employer a further contribution. The first one centred around the fact that the date of the November letter, on its own terms, did not come into effect, the cessation did not come into effect until at least 31 December.
Just pausing there, under the rules it is for the trustee to determine the date of cessation, under rule 16, not the employer, but 31 December would be the earliest date. The trial judge and the Full Court both said in that period of time a further contribution could be required under 3.1 and we would say there is no error there and it is not demonstrated that there is an error there.
The second reason given by the learned primary judge, which was endorsed by the majority, was that his Honour said the letter was capable of being construed as the employer offering to make good not just a shortfall based on the valuation assumptions that they sought to have imposed but reading the letter in its entirety it was open to be read as the employer agreeing to make good any shortfall. Again, it is a question of construction, which would present problems for special leave, but there is no apparent error in that reading.
The third basis was that based on a reading of the employer’s letter, they had indicated that of the different possible valuation amount they would give the most generous and his Honour said if they were prepared to give the most generous, the trustee ought to be saying to them we need a further amount. It is difficult to see why in the exercise of the best interests duty the trustee ought not be obliged to say to the employer, “It needs to be X. You’ve indicated you’ll give X minus, please give X”.
GORDON J: This is what I put to Mr Austin. Is it not the position then, on your analysis, that the conflict question intersects with that argument as well because what they are relying upon is something which, in itself, is not capable of relying on without taking a positive attitude towards it?
MR WISE: I think that is true.
GORDON J: You cannot separate the two points into separate silos.
MR WISE: I think that is right. I think your Honour is correct. Your Honours, I have a view to the time and I want to try to conclude. The fourth point, which is really a very fundamental point, if your Honours can go to 16.5, 16.5 contains an order of priority for payment out of the assets of the plan and first priority is given in (a) to costs and expenses of winding‑up and (b) is:
pensions being provided from the Plan which commenced payment before the Termination Date -
So pensioners who have already accrued and are receiving their pensions get first priority before anybody else. Then you get to (c) which is payment to those accumulation and DB members who have not yet reached retirement age and are getting their pensions.
The majority also made clear that there was no evidence before the trial judge or the Tribunal to the effect that there would not have been enough money if there were no further contributions sought from the employer to pay out Mr Billinghurst. So, on the order of priorities, Mr Billinghurst would be paid out and, upon that basis, the valuation that was sought to be obtained should have been done on a fair value basis rather than labouring under the constraints of the employer’s desires in the November letter. Thank you, your Honours.
NETTLE J: Yes, Mr Austin.
MR AUSTIN: Thank you, your Honours. I turn to what I have described as the second question for consideration, which is the conflicts question for the plan actuary. Your Honours, I want to put to the Court that the role of the plan actuary creates a problem for the operation of the superannuation industry. The Court can, I say, take judicial notice of the nature of the actuary’s work without going into technical specifics.
The work involves building a model of the calculation of actuarial outcomes with respect to an almost infinite variety of factual circumstances as to any model that can be referred to and applied, depending on the circumstances of the individual members and groups of members, as well as the circumstances affecting the liability and contributions of the employer.
The Court, I think, can recognise that building such a model is an expensive undertaking. In fact, I have not made a note of it, your Honours, but in Justice Moshinsky’s judgment there is a reference to the cost that was agreed to be paid in relation to some of the actuary’s work. So it is an expensive job and it is a model which is needed to assist both the trustee and the participant.
The participant has an interest in that work, particularly when some change in the plan is contemplated, such as an important change by termination of the plan. Engaging a separate actuary to build the necessary model and address the assumptions and scope of the model when a termination is in contemplation would substantially add to the expense for the employer and, indirectly, to the expense of the system.
Not surprisingly, therefore, according to a submission that was made to the Tribunal, it has become common practice for the employer to seek information from the plan actuary to assist the employer to discharge its responsibilities under the plan.
It is not a matter of the employer seeking to advance its own interests at the expense of the beneficiaries or the trustee or the trust; it is a matter of having access to a model and actuarial work which is useful for all those purposes. That makes for a problem.
If one concedes for the purpose of argument ‑ and there might be some scope for debating it but I will not go into that – that a plan actuary in a defined benefit plan is in a fiduciary position, it is a commercial fiduciary position, the kind of position which has been described in case law such as the decision of Justice Jacobson in ASIC v Citigroup Global Market [2007] FCA 963 – I have only the medium neutral citation.
I was not intending to take your Honours to that case so I had not foreshadowed it but I offer it now simply to show that commercial fiduciary relationships present those kinds of problems and the superannuation problem is particularly acute because of the cost of the actuary’s work.
What those cases show – and I do not think my learned friend would dispute it – is that there are various ways of dealing with a conflict of interest. The extreme response that the fiduciary has to adopt is to stand aside, to cease to act for either or both of the conflicting parties in the case of a conflict between duty to A and duty to B.
Standing aside is not the only option, though, and the other options that Justice Jacobson recognises include fully informed consent by the party to whom the fiduciary duty is owed, in this case the trustee, and also to the building of Chinese walls within the structure of the fiduciary so that the work that is done for one party is separated by information barriers from the work that is done for another party.
Your Honours, the trustee’s determination, upheld on appeal, was to set aside the trustee’s decision and remit the complaint to the trustee for reconsideration “by obtaining advice from an actuary who does not have a conflict of interest”. So the Tribunal opted for the first of those three options: that you must get out of the shop, you must let someone else do the work for the trustee because the plan actuary has become tainted.
That is the determination that creates uncertainty about the conflict point, uncertainty about the circumstances in which, notwithstanding the general approach that one finds in relation to commercial fiduciary relationships, the extent to which, in this particular case, the plan actuary of a DB plan has no option but to avoid the provision of any advice to the employer sponsor and the circumstances in which it is enough to build Chinese walls or obtain fully informed consent.
It is interesting that there is no real consideration in the Tribunal or in the Court as to whether the trustee might have consented to the extent of the work that the actuary did for the employer. I think the Court would, looking at the evidence summarised by Justice Moshinsky, infer that the trustee was aware of what was happening and, indeed, the submission was made that it is common practice.
NETTLE J: I see the time, Mr Austin.
MR AUSTIN: Finally, your Honour, I seek the Court’s leave to hand up to your Honours an explanatory memorandum and exposure draft which are short documents for the Court’s assistance in assessing this conflict point. At first – in the tribunal, the reasons on the conflict point were sought to be reinforced by reference to prudential practice guides applying in the superannuation industry which, of course, is regulated by APRA. This indicates where the Actuaries Institute is up to in relation to this complex matter.
NETTLE J: Mr Austin, was this in evidence below?
MR AUSTIN: No, it could not have been, your Honour. It was distributed by the Actuaries Institute on 8 May and then subsequently supplied to us. It is in all a five‑page document. There is an explanatory memorandum which basically says this revision of our practice guidance is being produced in response to Mercer v Billinghurst. Then there are four pages which reiterate the guidance that the Actuaries Institute provides for actuaries in the superannuation industry and makes it plain that an appropriate course of action would be, they think, to respond by building Chinese walls or obtaining fully informed consent and recording it carefully.
NETTLE J: How is the fact of an ex post facto announcement by the Actuaries Institute of relevance to a question of whether or not the Full Court erred in its construction of the obligations here?
MR AUSTIN: Well, it is relevant to the submission that this issue – the fact that the Full Court and the other adjudicators failed to take into account the alternatives to stepping out of the shop, namely fully informed consent or Chinese walls, failed to take into account those alternatives. Your Honours, it is merely – it goes not to that question itself, we do not suggest that what is being said in this draft guideline is any indication of the true law, but what we say is that it shows the public importance of the issue and that is why we seek to make the document available.
NETTLE J: Yes.
MR AUSTIN: I think it is opposed.
NETTLE J: I take it it is opposed, is it, Mr Wise?
MR WISE: Yes it is opposed, your Honour.
NETTLE J: The Court is not persuaded that it would be of sufficient relevance to assist us in the determination of this application to receive it.
MR AUSTIN: Thank you, your Honour. They are our submissions.
NETTLE J: In this matter the Court is not persuaded that the application for special leave raises a question of principle which it would be in the interests of justice for this Court to consider. Insofar as it involves questions of construction, they relate to a particular instrument and the Court is not persuaded that their determination would be susceptible to wider application. Otherwise, the Court is not persuaded that the decision of the Full Court of the Federal Court of Australia is attended by sufficient doubt to warrant the grant of special leave. The application is refused with costs.
Thank you, gentlemen. The Court will now adjourn to Wednesday, 13 June at 10.15 am in Canberra.
AT 11.24 AM THE MATTER WAS CONCLUDED
0
1
0