OAL Superannuation Fund Pty. Ltd. v Olivetti Australia Pty. Ltd

[1999] NSWSC 151

CITATION:	OAL Superannuation Fund Pty. Ltd. v Olivetti Australia Pty. Ltd. [1999] NSWSC 151
CURRENT JURISDICTION:
FILE NUMBER(S):	3139/98
HEARING DATE(S):	11/02/99
JUDGMENT DATE:	4 March 1999
PARTIES :	OAL Superannuation Fund Pty. Ltd. (Plaintiff) Olivetti Australia Pty. Ltd. (First Defendant) John Ananian (Second Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr A.G. Bell (Plaintiff) Mr. J.D. Heydon Q.C. with him Mr. N. Perram (First Defendant) Mr. R.W. White S.C. with him Ms R.A. Pepper (Second Defendant)
SOLICITORS:	Allen Allen & Hemsley (Plaintiff) Mallesons Stephen Jaques (First Defendant) Cutler Hughes & Harris (Second Defendant)
CATCHWORDS:	TRUSTS - Superannuation Fund - Whether resolution of trustees conferred accrued rights in members
ACTS CITED:	Superannuation Industry (Supervision) Regulations 1994 (Cth)
CASES CITED:	Industrial Equity Limited v Blackburn (1977) 137 CLR 567 Turner v S.R. Nominees Pty. Ltd. (1996) 31 ATR 578
DECISION:

General Outline

1 The question for decision is whether OAL Superannuation Fund Pty. Limited (OAL), the trustee of the OAL Superannuation Fund is bound as such trustee to make a distribution of surplus to fund members, pursuant to a resolution of its directors of 27 January 1998. OAL seeks a declaration that it is not so bound. The first defendant, Olivetti Australia Pty. Limited (Olivetti), the principal employer referred to in the deed, seeks a declaration that the trustee is not so bound, but that if it is then it is also bound to make a distribution of surplus to it. Mr. Langley, the second defendant, who is joined as a party to represent the fund members as at 18 November 1997, seeks a declaration that the resolution conferred upon the represented parties an entitlement to a distribution from surplus and seeks an order that this be effected. By late amendment which I allowed, subject to the issue arising being determined at a later time, Olivetti seeks a declaration that a deed dated 5 December 1997 amending the trust deed is invalid.

Facts
2 The fund was established by trust deed and rules dated 11 February 1977. That deed and rules were, in accordance with their provisions, completely replaced by an amending deed, with new rules dated 13 March 1996, which rules have also been amended. The only part of the original deed which it is necessary to set out, not for the determination of the present questions, but for the determination of the final question which is to be tried by separate subsequent hearing, is the preamble or recital, which is as follows:

WHEREAS

1. The Principal Company has agreed to establish an indefinitely continuing Fund to be known as the Olivetti Australia Staff Superannuation Fund to provide individual personal retirement and other benefits for such of the employees of the Principal Company and of any associated or subsidiary company as shall become members of the Fund.

2. The Trustee has agreed to act as the first trustee of the Fund.

3 The relevant provisions of the replacement rules are set out below. As is usual in these matters the deed is short and most of the relevant provisions are set out in rules attached to the deed, which are themselves referred to as "articles".

ARTICLE 1

DEFINITIONS

Interpretation

1.2 Act

The Superannuation Industry (Supervision) Act 1993

Statutory Requirement

Any requirements as may from time to time be imposed under the Act or the Income Tax Act, including

(a) any administrative guidelines issued by the Responsible Authority; or
(b) statements by Government advising changes to the Statutory Requirements,

which govern the operation of the Fund, with which the Fund must comply in order to be a Complying Superannuation Fund or with which the Trustee must comply.


ARTICLE 2
ADMINISTRATION

AMENDMENTS

2.22 Subject to Rule 2.23, the Trustee may with the approval of the Principal Employer at any time, by deed, amend the provisions of the Trust Deed and Rules including this Rule PROVIDED THAT no amendment shall be made which shall alter the object of the Fund as defined in the preamble to the Original Deed.

2.23 In relation to the benefit provided by the Fund

(a) an amendment shall not be made which has the effect of:


(i) reducing the amount of a benefit, calculated on the basis of contributions to the Fund and earnings on those contributions, that has accrued, or become payable, to a Member before the amendment; or

(ii) reducing the amount of a benefit other than a benefit referred to in paragraph (i) of this sub-rule, that is, or may become payable to a Member in relation to a period before the amendment;

(b) the benefits that have accrued or become payable to a Member must not otherwise be reduced.

Unless

(i) the reduction is required because of and does not exceed the value of, any tax payable on Fund income; or

(ii) the reduction is required only to enable the Fund to comply with the Statutory Requirements; or

(iii) the Member approves in writing of the reduction; or

(iv) the Responsible Authority approves in writing of the reduction.

ARTICLE 10
CONTRIBUTIONS
MEMBER CONTRIBUTIONS


10.2 A Member shall contribute from the date of becoming a Member such amount as is required by the Benefit Schedule applicable to the Member.

10.3 Contributions in respect of a Member shall be deducted from his wages or salary by the Company and the amount of such contributions so deducted shall be paid by the Company to the Trustee in such manner and at such times as agreed between the Company and the Trustee in accordance with the Statutory Requirements.

COMPANY CONTRIBUTIONS


10.4 (a) The Company shall contribute to the Fund in relation to the Member such amount as is required by the Benefit Schedule applicable to the Member.

(b) The Company may by notice to the Trustee suspend contributions required under paragraph (a) in relation to any or all of the Members in the employment of the Company and the Trustee shall adjust the benefits of the Members to reflect the suspension of contributions after considering the advice of the Actuary.

4 The rules provide for three categories of members, namely A, B and C. All category B and C members are also category A members, but all category A members are not category B or C members. The category A benefits appear to arise from prior membership of a separate fund merged with the Fund constituted under the original deed, upon the 1996 deed being entered into. No contributions are required of members of this fund, the employer contributing such amount as it determines or as it is required by law to provide. Those contributions, and any voluntary contributions of members, are credited to what is called an SG account for the member and invested. It is an accumulation account. On retirement or withdrawal or death or disability the member is entitled to the balance in the SG account of such member. Category B and C benefits are defined benefits. The category B member contributes 3.5% of salary to the fund and the category C member contributes 5% salary to the fund. The employer contributes the balance necessary to fund the defined benefits. The amount of the defined benefit varies depending upon whether it is a normal retirement benefit, an early or late retirement benefit, a withdrawal benefit, or a benefit payable upon disability or death. For the purpose of this action it is not necessary to go into this with more particularity.

5 By 1997 there was a considerable surplus in the fund available to pay the defined benefits to the category B and C members. It is to be appreciated that there could be no surplus in the fund representing the entitlements of members in category A, who are entitled to the full amount of the net SG account and not to any defined amount. When I refer to surplus I refer to surplus being the amount in excess of liabilities to members of the fund taking into account of course further contributions and expected liabilities. On 13 November 1997, Olivetti asked OAL as trustee to "examine how best to utilise the surplus in the fund's assets. This is to be done in such a way as to repatriating a proportion of the surplus back to the company while, ensuring a distributed proportion of the surplus among the members, always maintaining adequate provision for the on-going requirements of the fund." [sic]

6 This letter was tabled at a meeting of directors of OAL on 18 November 1997, when it was agreed to commence the necessary steps for repatriation, for the process to be reviewed regularly, and terminated if the trustees were not convinced that the repatriation was in the interests of members, it being agreed that advice and recommendations would be obtained from the fund actuaries administrators and solicitors.

7 Prior to this resolution, Messrs. Sedgwick Noble Lowndes, Actuaries, had written to Mr. Garsia, a director of Olivetti, referring to the question of distribution of surplus, and advising on some of the steps which would be necessary to achieve this and the legality of such steps. This was followed by letter dated 14 November 1997 to Mr. Swanbury, Divisional Manager Finance and Administration of Olivetti, setting out in simple form the steps required to "facilitate repatriation of surplus to the company". Step 3 was the requirement for an amendment to the trust deed to allow this repatriation. On 2 December 1997 the directors of OAL resolved to amend the trust deed in accordance with advice from the actuaries. Pursuant to this an amending deed was executed on 5 December 1997, reciting the intention of the amendments was to facilitate use of the surplus for the benefit of members and the principal employer, reciting rules 2.22 and 2.23 and that the trustee and the directors of Olivetti considered that the amendments complied with the requirements of those rules 2.22, and adding to Article 5 of the rules the following:

5.8 (a) The Trustee, with the agreement of the Principal Employer and on the advice of the Actuary, may deal with any surplus by decreasing the rates of contributions or by increasing the rates of benefits or by repatriating surplus to the Principal Employer or partly by one method and partly by the other or in any other manner and either temporarily or indefinitely, including the carrying forward to any surplus or deficiency.

(b) The Trustee must not carry into effect any repatriation of surplus to the Principal Employer in accordance with paragraph (a) of this Rule unless such notice has been given to Members, such resolutions passed and such other requirements of the Act complied with as the Trustee considers appropriate, having due regard to the Complying Superannuation Fund status of the Fund.

8 The Actuaries prepared an actuarial valuation of the fund as at 1 July 1997 indicating a surplus of $12.2 million in relation to accrued benefits and $9.6 million in relating to total service benefits. The trustees had previously been advised by the actuary that if some of the surplus was to go back to Olivetti as principal employer it would be necessary for additional benefits to be provided for members utilising part of the surplus for that purpose. The actuaries by letter dated 5 January 1998 explained various ways in which benefits could be increased. I set out parts of that letter:

An uplift in benefits could be achieved in a number of ways for defined members, including:

leaving the defined benefits as per existing Rules, but dividing up part of the surplus among members with each member's share being credited to his or her accumulation account to be paid as an additional benefit.


It would also have to be decided to what extent Category A (accumulation) members would participate in the distribution.

There are a number of ways of dividing up surplus on implementing an apportionment as per the last dot point above, and some possibilities are set out below. In the figures following we have assumed that the accumulation members and the SG Accounts for defined benefit members would be eligible for surplus, but not transfer and voluntary contribution accounts. All amounts shown are as at 1 July 1997.


(Basis 1)
(Basis 2)

Division in proportion to Account balances including Member Accounts and a notional Company account equal to Member Accounts for defined benefit members (Basis 3):

A notional Company account could be taken to make an allowance for the Company financed component of the defined benefit liabilities. For example a common percentage of the Member Account balance could be used, say 100% which is the Company withdrawal benefit on full vesting. This differs from Basis 1 in that the vesting factor is always 100%. On this basis the total of the account balance would be increased to $5,446,447.

9 On 21 January 1998, Mr. Mazzi, the Managing Director of Olivetti wrote to OAL enclosing various letters of advice and went on to say:

We request that you consider distributing the amount of $2,444,000 among the Members and we would ask you, the Trustees of the Fund, to examine and implement the most appropriate and effective methodology to achieve the distribution.

Furthermore, we wish to have the amount of $8million to $8.5 million repatriated to the Company from the Fund's assets, leaving the balance of the surplus of the Fund to cover all ongoing requirements of the Fund.

Under Rule 1.4 the Trustee was entitled to act on a letter signed by the Managing Director of Olivetti.

10 On 27 January 1998 the directors of OAL met and considered the question of distribution of surplus, the advice received, and the letter from Olivetti dated 21 January 1998. The relevant minute is as follows:

REPATRIATION OF THE FUND'S SURPLUS ASSETS:

Further to the meeting held on 18 November 1997 and the investigations effected to ascertain whether it were possible to repatriate a proportion of the Fund's surplus assets back to the Company while at the same time assessing a distribution/proportion of the said surplus among the Members of the Fund always maintaining adequate assets in the Fund in respect of Members and the Fund's ongoing viability in accordance with actuarial advice.

The Trustees received a letter dated 21 January 1998 from Olivetti Australia asking the Trustees to consider distributing an amount of $2,444,000 among the Members. Having obtained all relevant legal and actuarial particulars from the Fund's actuaries, it was moved to proceed. The Trustees will be undertaken to notify the members that a distribution of $2,444,000 is to be made in a manner assessed as fair by the Trustees. [sic]

After due consultation and advice from the Actuaries, it was resolved to distribute the allocation on the following criteria:

1. All Members in the employment of the Company as at 18 November 1997.

2. A proportion of the Member benefit is derived by the aggregation of the following criteria:

a) Member contribution to Plan B or C.
b) Company contribution to Plan B or Plan C vested at 100%
c) Company contribution to Plan A.


3. All new Members of Plan A who joined the company since 1 July 1997 to receive a minimum of $100.00. Similarly with any Member whose entitlement comes to less than $100; they too to receive a minimum payment of $100.

Furthermore, a request was made by the Company to repatriate to it between $8 million and $8.5 million leaving the balance of the assets in the Fund to meet all requirements of the Fund as per an actuarial certification to be provided by Sedgwick Noble Lowndes.

11 On 29 January 1998 at a meeting of trustees of the trust the minutes of the previous meeting were distributed and taken as read and the following resolution was passed:

REPATRIATION OF THE

FUND'S SURPLUS ASSETS Further to the meeting held on 27 January the matter of the repatriation of the Fund's surplus assets was discussed and the following was resolved:

1. That the Fund's actuaries be asked to confirm the amount to be retained in the Fund out of the Fund's assets to meet accrued liabilities and to allow for the ongoing viability and security of the Fund and how much could be repatriated to the Company.

2. That the Fund's actuaries be asked to provide a list of individual amounts to be credited to Members on the basis adopted at the Trustees' meeting of 27th January 1998.

3. That three Trustees meet to compile a set of questions and answers for the benefit of Members.

12 On 31 January 1998, a fax was received by Mr. Mazzi at Olivetti from Mr Keating, who appears to be a member of a French legal firm handling some takeover negotiations between Olivetti and Wang Corporation, requesting that the distribution not proceed during the negotiations with Wang, and stating that it was imperative that it not be implemented in the period as it had potential implications for the agreement. Following upon this Mr. Mazzi, who was by then the managing director of Olivetti, wrote to OAL as follows:

Further to my letters dated 13th November 1997 and 21st January 1998, I have to inform you that the Parent Company has instructed me to rescind the Company's request to repatriate any of the OAL Superannuation Fund's surplus back to Olivetti Australia Pty. Limited or to the members of that fund.

Consequently, please note that allocation in this regard has to cease forthwith.

13 This request was noted at a meeting of directors of OAL on 3 March, although no resolution seems to have been passed in connection with it, although it was noted that the trustees "were instructed to cease all action concerning the repatriation."

14 It seems that the trustee may have considered that it was still bound to continue the repatriation process and sought agreement to this pursuant to rule 5.8. Olivetti responded stating the instructions from the parent company were not to continue, that it would not agree to the repatriation and that "an agreement between the company and trustee was never entered into for this repatriation to take place". The final thing which happened relevant to these proceedings is a resolution of OAL of 4 May 1998, pursuant to which the trustee resolved to cease all action relating to what was described as the repatriation process.

Questions for decision

15 These are:

A. Whether the letter from Olivetti of 21 January 1998 was an agreement to the Trustee dealing with the surplus of $2.444 million so as to distribute it among the members.

B. Whether the resolution of the Trustee on 27 January 1998 was a dealing with surplus giving rise to accrued rights in members.

C. Whether any consent could be withdrawn.

D. Whether if the resolution created accrued rights, the Trustee was bound to distribute from surplus an amount of between $8 million and $8.5 million to Olivetti.

Questions C and D

16 It is convenient to answer these questions first. If the resolution of the Trustee gave rise to accrued rights to benefits these could not be reduced or withdrawn by the purported withdrawal of consent. The rules could not be amended to bring this about (Rule 2.23(b)) and regulation 3.1.6 of the Superannuation Industry (Supervision) Regulation 1994 would prevent this. This disposes of question C.

17 As to D, which arises on the cross-claim, while there is no doubt that the genesis of the proposals was a desire in Olivetti to strengthen its balance sheet by means of a capital injection from part of the fund surplus, it is impossible to read the letter of 21 January 1998 as making consent to the distribution of $2.444 million in any way conditional upon repatriation of an uncertain amount between $8 million and $8.5 million to Olivetti. Nor could the resolution of the trustees, if it gave rise to accrued rights, in some way give rise to the other obligation because S117(5) of the Superannuation Industry (Supervision) Act 1993 (Commonwealth) would operate to prevent any such obligation from arising unless its pre-conditions were met as would Rule 5.8(b) of the fund rules.

Question A - the letter of 21 January 1998.

18 I consider this letter was an agreement to distribute $2.444 million of the surplus among members. Agreement could mean no more than consent. The important paragraph in that letter is

We request that you consider distributing the amount of $2,444,000 among the Members and we would ask you, the Trustees of the Fund, to examine and implement the most appropriate and effective methodology to achieve the distribution.

19 The words "examine and implement" are a clear authority to the Trustee to determine the method of distribution and to bring it about. This authority is not conditional upon the subsequent paragraph relating to a wish to have part of the surplus repatriated to the company, although obviously the Trustees were intended to consider this and it was expected they would take the necessary steps to bring it about.

Question 6 - the effect of the trustees resolution

20 I have set out rule 5.8A. The resolution as to surplus does not decrease rates of contribution or increase rates of benefits. So the question is whether the resolution is a dealing with any surplus in any other manner, namely a manner not amounting to an increase in rate of benefit or decrease in rate of contribution. The question is really whether the resolution moved $2.444 million from the fund assets which were not allocated to benefits, to members accumulation accounts, giving members accrued rights which could not be taken away.

21 In oral evidence Mr. Bowyer, a director of the trustee, stated the trustee by its resolution adopted the basis for apportionment among members being basis three in the letter from the actuaries of 5 January 1998, subject to all members receiving at least $100.00. The following evidence was given by him in cross-examination at p6 of the transcript:

Q: The first criterion was to identify the members who would participate in the allocation, agree?
A: Agreed.

Q: The second step required determining how that amount would be divided up between members, didn't it?
A: Yes.

Q: The dealing first with members who were members of plan B or plan C, it was, you take an amount of their member contribution?
A: Yes.

Q: Secondly, you take account of a company contribution vested at 100 per cent?
A: Yes.

Q: And that was one of the proposals Sedwick Noble Lowndes' letter of 5 January?
A: Yes.

Q: The proposal in the third dot point that I took you to?
A: Yes.

Q: Then the third criterion was to take the company contribution to plan a, see that, and again that is an amount for which an account for each member is kept?
A: Correct.

Q: Just pausing there, the effect of doing that would be that for each member of the fund you would arrive at a particular dollar figure representing some of those three items, wouldn't you?
A: That is correct.

Q: And what was resolved was that the, at least at this step, was that the interest or the share rather of each member in the $2,444,000 benefit would be calculated by taking the dollar sum for that member and dividing of the dollar sums for all members?
A: Correct, it ended up by actuaries doing those calculations.

Q: A calculation based on those criteria?
A: Yes.

Q: There is a twist, perhaps because of resolution 3, what I suggest to you is that by criterion 3, having done that exercise, you could see whether any members would receive less than $100, and I suggest that if you found or the actuaries found that they would do so, such members who were members of plan 1, joining the company since 1 July 1997 WITHDRAWN.

Q: And I suggest that if you found that that was the case, then you would have to give that person $100 allocation of benefit?
A: Yes.

Q: And then rework the figures by reducing the $2,444,000 available for allocation by how many sums of $100?
A: That was purely so that we would each have something, and say we have "X" number of people joined that date, you are entitled to $100, and the rest calculated on this criteria.

Q: You agree that those calculations are merely an arithmetical instrument to apply the criteria upon which the directors resolved on 27 January?
A: Yes, this was the basis on which they were calculated.

Q: There was nothing to be done by the directors of the trustees to increase the benefits of members by amounts to be calculated in accordance with those criteria as you understood it?
A: No, it was just purely based upon this criteria and we would get it calculated on in this manner.

Q: If this proceeded and any person reached retirement age say, and retired, what would have happened is that person would received his or her superannuation entitlements under plan A?
A: Yes.

Q: His or defined benefit under C or D if he or she was a member of those plans?
A: Yes.

Q: And the benefit calculated in accordance with those criteria?
A: Correct.

22 The competing arguments on the question of accrued rights can be summarised as follows:

A. The trustee and Olivetti, say that there was no dealing with the surplus giving rise to any accrued right because:

(i) The benefits to be allocated to each member had not been calculated;

(ii) It was not decided whether the proportionate part of the fund would be allocated to the members' accumulation account or to the members' contribution account in the case of Category B or Category C members.

(iii) The benefit which the member might ultimately receive had not been allocated.

In addition the plaintiff says that the transaction was a complicated one involving distributions of surplus to employer and employee, and that the letter from Olivetti and the resolution must be considered within that factual matrix. I have already rejected this. The plaintiff also says that the resolution envisaged notification to members and the carrying out of whatever actions were necessary to enable part of the surplus to be paid to the employer and that before this was achieved the trustee resolved to cease all action.

B. The members say that the resolution gave rise to accrued or immediate rights because it was not a resolution authorising the carrying out of some further action, but a resolution operating of itself to vest a benefit in them with no further action being required by the trustees, but rather some administrative action by the actuaries to apportion the benefit to the members' accumulated accounts.

23 There is strength in the arguments of both sides. In some ways it is better to ask whether the resolution gave rise to a present entitlement to have the benefit credited rather than to talk of an accrued right because the determination of accrued benefits can give rise to confusion. See J. Edstein: The Meaning of Accrued Rights 1996 25 ATR 35. In Turner v S.R. Nominees Pty. Limited (1996) 31 ATR 578, which concerned rights to distributions of trust income pursuant to resolutions of a corporate trustee, Santow J held that a resolution in the following words prima facie created a present entitlement in the beneficiaries mentioned:

It was resolved that the following distributions be made by the Romautu Trust:

C.L. Turner $1,977.00

L.J. Turner $1,977.50

B.K. Turner $3,977.50

by crediting their respective loan accounts

In that case it is likely that the crediting of the books was to be carried out by the trustee rather than by the actuary, but it was the resolution not the crediting which was held to establish the entitlement. That would support the members' case here.

24 I do not think there is any doubt as to the fund or account which was to be credited. It could only have been the accumulation account held by all members being the Category A account. The other accounts were defined benefit accounts not accumulation accounts.

25 In some ways the situation which is under consideration in this case is analogous to rights which arise on declaration of a dividend by a company. Such a dividend can be paid only out of profits and in strict terms the dividend is that part of the profits the company decides to distribute to shareholders. Declaration of a final dividend gives rise to a debt payable to the shareholder immediately or upon the date stipulated for payment: Industrial Equity Limited v Blackburn (1977) 137 CLR 567 at 572. In that case the resolution provided for a dividend partly in cash and partly by distribution of shares in another company. The declaration of dividend was declared invalid but it appears to have been accepted that had it been valid an immediate right would have arisen, albeit that right would have included a right to transfer of shares which would have required further action on the part of the company. In the same way an immediate right in shareholders arises on declaration of a final dividend of a total amount which would require division among shareholders in proportion to shares held over total shares issued. The position in the instant case is somewhat similar. The trustees resolved to distribute a particular sum from the actuarial surplus to members. They clearly regarded themselves as having dealt with the surplus. The resolution of 29 January 1998 makes this clear because item 2 of the resolution which I have set out assumed an entitlement in the individual members. There was nothing further to be done by the trustees, the allocation to members being a purely administrative step resulting from mathematic calculations flowing from ascertainable certain figures. The matter is not altogether certain and is somewhat finely balanced, but I conclude that pursuant to the resolution of 27 January 1998 the members obtained accrued or immediate rights. That being so there was no ability to take those rights away.

26 Finally, I have not dealt with the argument of counsel for the members that the decision not to proceed was not a decision made in good faith. It is not disputed that the affairs of pension funds must be conducted in good faith. The lack of good faith is said to have been on the part of Olivetti. That is not really relevant here. If there were consent to a distribution I see no reason why that consent could not be withdrawn on instructions from a holding company prior to the distribution taking effect. There is nothing to suggest the reason for those instructions involved some act of bad faith.

27 The result of this is that the summons should be dismissed. A declaration should be made as sought in paragraph 1 of the first cross-claim to declare the members rights, and an order should be made as sought in paragraph 2 of that cross-claim to give effect to that declaration. The claims made in the second cross-claim, other than that in paragraph 1(A), should be dismissed. The claim in paragraph 1(A) has already been fixed for hearing on 8 March 1999 when final orders can be made.

I certify that paragraphs 1 to 27 are a true copy of the Reasons for Judgment given by Mr Justice Windeyer in matter 3139/98 OAL Superannuation Fund Pty. Ltd. v Olivetti Australia Pty. Ltd.

______________________________
Laurel Laurent
Associate to Mr. Justice Windeyer

4th March 1999.

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