Pieter Johannes Venema and Kenneth John Wickham v TRW Carr Pty Ltd No. SCGRG 93/1364 Judgment No. 4364 Number of Pages 8 Equity

[1993] SASC 4364

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA PERRY J

CWDS
Equity - fiduciary duty owed by trustee - application by plaintiffs for immediate relief - claim by employees of the defendant company for a declaration that the action of the defendant in refusing to implement changes which it had previously agreed to with respect to the employees' -superannuation fund, and in seeking payment to itself of a large part of a substantial surplus which had been generated within the fund was a breach of fiduciary duty and a breach of trust - further claim that a letter to the employees asserting that increased benefits previously notified to them were not payable constituted misleading or deceptive conduct contrary to 5.52 of the Trade Practices Act (Commonwealth) 1974 - defendant denied any breach of trust or breach of fiduciary duty and asserted that the managing director, who had since resigned, had acted contrary to instructions in dealing with the fund and that the proposed changes involving increased benefits for the employees were ultra vires and void - defendant further contended that as it wished to cross examine on the plaintiffs' affidavits, and also wished to join the former managing director and the company administering the fund as third parties the matter was not appropriate to be dealt with by way of an application for immediate relief under Rule 25.02 - held that although the plaintiffs' case was strong, the defendant had raised a sufficiently substantial defence to deflect the application for immediate relief - held further that it was better that all of the issues, including those raised between the defendant and the former managing director arising with respect to the administration of the fund were dealt with in one proceeding, and in the one hearing. Companies Code s68A and RSC R25.02. Davis and Ors v Richards and Wallington Industries and Ors (1991) 2 All ER 563; Re Canada Trust Co and Cantol and Co Ltd (1979) 103 DLR(3d); Lock v Westpac Bankinq Corporation
(1991) 25 NSWLR 593 and Wicklow Enterprises Pty Ltd v Doysal Ptv Ltd and The Registrar General 124 LSJS 225, considered.

HRNG ADELAIDE, 7 September 1993 #DATE 24:12:1993
Counsel for plaintiffs:     Mr T. Gray QC with him
  Mr P. O'sullivan
Solicitors for plaintiffs:    Fisher Jeffries
Counsel for defendant:        Mr R J Whitington with him
  Mr S Voss
Solicitors for defendant:     Thomsons

ORDER
Application dismissed.

JUDGE1 PERRY J The plaintiffs are a small group of long-serving employees of the defendant. They are members of a superannuation fund established in August 1971, known as a "Defined Benefits Superannuation Fund". The terms of the fund are contained in a document headed "Proposal for Policy". That document describes the "proposers" as the defendant. Participating employees of the defendant are described as "Members". 2. No actual policy has been put before the Court, but clause 2 of the proposal states that:
    "The basis of the contract in respect of the benefits
    secured to the Proposers under the Policy in respect of any
    Member shall be:
    (1) this Proposal; and
    (2) the applications certificates statements lists and
    information supplied by or on behalf of that Member and by
    or on behalf of the Proposers in respect of him pursuant to
    any of the provisions of this Proposal." 3. The proposal and its schedules, which together comprise a very length document, must be regarded therefore, as containing the essential terms of the superannuation fund. 4. The fund is administered by National Mutual Life Association of Australasia Ltd ("National Mutual"). 5. Pursuant to clause 14 of the proposal, the fund, which is a combination of contributions from the defendant and the participating employees together with accumulated income, is vested in the defendant, and held by it for the benefit of the participating employees. Clause 14 provides that the proposers do not have any beneficial interest in the fund: "...save only in respect of any sum which the Proposers may become entitled to retain pursuant to the express provisions (if any) in that behalf herein contained." 6. Clause 24 provides that the proposers may, with the consent of National Mutual: "...at any time and from time to time amend delete from and/or add to this Proposal PROVIDED THAT no such amendment, deletion or addition shall detrimentally affect or derogate from the benefits already secured in respect of a Member at the date of such amendment, deletion or addition without the consent in writing of that Member." 7. The first schedule to the proposal provides for an actuary to be appointed by the proposers. He or she is defined as "the appointed actuary" for the purposes of the fund. The superannuation fund is, as I have said, described as a defined benefits fund. This means that on the death or retirement of a member a benefit is payable in accordance with a fixed formula, in the case of retirement, ordinarily 15% of the average of the member's salary as at the 1 October in each of the three years preceding the date on which he or she retires, multiplied by the number of years service after the commencing date of the fund, with some refinements which I need not go into at this stage. However, clause 2 of the Third Schedule allows the proposer to augment the amount of any benefit payable to a member, with the approval of National Mutual or the appointed actuary. 8. During the course of their membership of the fund, employees have contributed 5% of their salary. Since 1 July 1984 until August 1990 the contribution made by the defendant was 8% of the total salaries paid to members. The defendant's contribution is reviewed at intervals of not more than three years pursuant to the provisions of clause 4(b) of the Fifth Schedule. The review is conducted by the appointed actuary who may recommend a revised contribution, either higher or lower than the then current contribution. In doing so, the appointed actuary must have regard to - "...the then Accumulation to the past and prospective deaths disablements retirements and cessations of membership attributable to other causes, and to Salaries to the income expected to be credited to the Accumulation Account and to the then current scale of administration charge and premiums for Group Life Assurance." 9. The clause provides further that: "If any new Company's contribution is recommended pursuant hereto, the company's contribution shall, unless otherwise agreed between the Proposers and National Mutual, or the Appointed Actuary, thereupon be altered in accordance with that recommendation." 10. During the 1980s a substantial surplus developed in the fund in the sense that it stood at a far higher amount than was necessary to service the likely calls upon it. It appears that although an actuarial review as at 1 October 1983 recommended that the defendant's then contribution rate of 9.2% be reduced to 6.5%, in fact it was set at 8% in order to service improved benefits for the members. A further annual review conducted as at 1 October 1986 recommended that in view of the surplus which had developed, contributions were not required from the defendant for at least nine years. The appointed actuary also recommended that the surplus could be utilised by improving the benefits to the members. Notwithstanding that recommendation, the defendant continued to make contributions at the rate of 8% of members' salaries. 11. A review conducted as at 1 October 1989 described the financial position of the fund as "extremely favourable", and recommended that the company suspend its contribution for at least the next three years. It observed also that if there were to be few new entrants in the future (there had been no new entrants to the fund in the preceding six years) "the company could suspend contributions indefinitely". 12. At the time of that review, it appears that the surplus in the fund stood at $1,694,800. Although the defendant maintains that that surplus is a result of its contributions to the fund exceeding what was recommended, it appears that the surplus should properly be regarded as a result of a combination of the contributions from both the members and the defendant. 13. At all events, it was not until some time after the 1989 review that any substantial change was made in the contributions from the company. In August 1990, the directors of the defendant gave instructions to National Mutual, as a result of which the past service benefit scales were improved substantially, and company contributions were reduced from the existing level of 8% to 1% of members' salaries. National Mutual proceeded to administer the fund in accordance with the changes which had been notified to it. At the same time, National Mutual was instructed to make formal changes to the fund instrument, that is, the proposal and its schedules. The request to make appropriate amendments to the fund's "governing rules" as they were then described, was conveyed in a letter dated 9 August 1990. 14. At that stage there were discussions taking place concerning the consolidation of the fund in question with a provident fund to which the defendant was a party. As a result of that, and for other reasons explained in the affidavit of Mr Boath, the senior superannuation consultant of National Mutual, it was not until April 1993 that National Mutual forwarded the formal amendment to the defendant for it to execute. 15. It refused to execute the amendment. By then there had been a change in the directors of the defendant company. Of particular significance is the fact that the managing director, Malcolm John Maslin ("Maslin"), who had served in office since 1964, retired at the end of 1990. He was a participating member of the fund and received a gross benefit amount of $795,863, together with a payment from the company's provident fund. In all, Maslin was paid a total amount in excess of $1 million. 16. The defendant maintains that Maslin was in breach of his duty as a director of the company in failing to reduce the contribution by the defendant to the fund earlier, in accordance with the advice of the appointed actuary, and in taking advantage of the inflated benefit which became payable to him on his retirement as a result of the decision to pay increased benefits. 17. The defendant proposes to pursue Maslin for any "loss or damage" which the company might be found to have suffered if the plaintiffs are entitled to retain the additional benefits flowing from the purported amendment of 9 August 1990. 18. The defendant also wishes to join National Mutual as a third party and to claim from it damages for an alleged failure on its part to administer the fund in a way which protected the company from the consequences of the action of Maslin in purporting to amend the fund without authority, and "to his own personal advantage and benefit". 19. As I have already explained, following the advice which it received from the defendant in August 1990, National Mutual has administered the fund in accordance with the amendments. In particular it has paid members entitled to receive benefits from the fund in accordance with the amendments, issued annual membership benefits statements showing entitlements calculated in accordance with the amendments, and acquiesced in the reduction in contributions from the defendant from 8% to 1% effective from August 1990. 20. Matters came to a head in May 1993 when the defendant, by then under the control of its new board of directors, wrote to each of the participating employees, including the plaintiffs, asserting that, amongst other things, the amendments to the fund instrument purported to have been made in August 1990: "... were not properly implemented and they cannot now be implemented", and stating that the benefit rates which applied to members prior to 1990 were those currently in force. In the letter the defendant denied that the employees were entitled to the level of benefits which they had been notified in the annual membership benefit statements issued by National Mutual since 1990, and suggested that a much lower amount, calculated and set out in each letter to the employees, was payable by way of a benefit. 21. The defendant went on to propose in the letter that the fund be wound up, and that the surplus be distributed between the company and the employees on a basis which involved a payment of $400,000 to the defendant. 22. Not surprisingly, many employees were upset at the thought that benefits which had formally been notified to them by National Mutual were said by the defendant not to be payable, and at the thought that the defendant wished to obtain a payment representing a substantial proportion of the accumulated surplus, for its own benefit. 23. In its Statement of Claim, the plaintiffs assert that the August 1990 changes to the fund instrument were validly made, notwithstanding the fact they were not formally documented. They assert in effect that it is not open to the defendant to resile from those changes and to refuse to execute the document evidencing the changes which has been tendered to it by National Mutual. The plaintiffs further seek a declaration that the defendant has acted in breach of trust, and in breach of its fiduciary duty to the plaintiffs in its capacity as trustee of the fund, by preferring its own interest at the expense of the interests of the plaintiffs. 24. The plaintiffs further assert that the defendant has engaged in conduct which is misleading of deceptive, contrary to s.52 of the Trade Practices Act (Commonwealth) 1974. The plaintiffs seek rectification of the fund instrument to record the August 1990 amendments. They also seek an order removing the defendant as trustee, an order appointing National Mutual as trustee of the fund, damages for breach of trust, and damages pursuant to s.82 of the Trade Practices Act. The plaintiff filed a number of affidavits in support of its application for immediate relief. It is not necessary for me to canvass them in detail, except to say that most of the information in the affidavits is not challenged by the defendant, and goes to prove the factual background to the August 1990 amendments and the manner in which the fund has been administered since then. 25. At the time the matter was argued before me, no defence had been put on file, nor had any draft defence been put forward by the defendant. I directed that it lodge a draft defence so that I could more specifically identify the grounds of defence which it intended to raise. The defendant subsequently lodged a draft defence in accordance with that direction. 26. In resisting the application, the defendant relies substantially on a long affidavit sworn by its present managing director, a Mr Daniel Runge. Much of the affidavit is taken up with detailing alleged limitations upon the authority of Maslin to amend the proposal without the prior approval of the defendant's parent company, TRW Inc, a company trading out of Cleveland, Ohio in the United States of America. The affidavit also foreshadows the various claims to which I have referred which it wishes to pursue against Maslin and National Mutual. 27. In its draft defence the defendant raises a proposed plea that it has contributed to the fund amounts in excess of its obligation under clause 4(a) and clause 4(b) of the Fifth Schedule of the proposal, and that the substantial over-contribution by the defendant is attributable to breaches of duty by Maslin. The defendant wishes to deny the legal efficacy of the August 1990 amendments on the ground that the instruction to National Mutual to implement the changes was ultra vires the directors and void. It wishes to deny that National Mutual has properly consented to the amendment. It denies that its proposal to the employees conveyed to them in May 1993 was in breach of trust or in breach of any fiduciary duties which it owed as employer and trustee, and contends that the proposal to the employees was a "generous proposal to the then remaining members of the fund". 28. In the proposed defence the defendant foreshadows a plea that the purported benefit increases made from August 1990 bestowed a "gratuitous retrospective (and consequential prospective) benefit" on the plaintiffs, and for that reason was incapable of founding an estoppel which otherwise might arguably prevent the defendant from asserting the invalidity of the purported increases. It contends that since October 1986, having regard to the reports of the appointed actuary, it was entitled to reduce its contribution to nil, and "it should have done so". 29. In the peroration to the draft defence, the defendant wishes to plead - "...that it would be inequitable to compel the defendant to complete or implement the purported amendments of August 1990 and to give up property and or rights to which it is properly entitled." 30. One of the points taken at an early stage of his argument by Mr Whitington who appeared for the defendant was that if the defendant is not given the opportunity to defend, and at the same time to join as third parties Maslin and National Mutual, factual findings pronounced as between the plaintiffs and the defendant would not be binding on Maslin and National Mutual, and would have to be re-litigated in the course of proceedings against them, which presumably, in that event, would be brought separately from the present proceedings. 31. Mr Whitington also indicated that the defendant wished to cross examine Mr Piper, one of the directors involved in the decision to make the changes in August 1990, on the affidavit which has been filed on his behalf, and also wished to cross examine a number of other deponents to affidavits put forward by the plaintiffs. 32. Mr Whitington submitted that as the company had, as he put it, over-subscribed to the fund, it had an interest in the surplus by way of resulting trust. As to this aspect of the matter, he cited Davis and Ors v Richards and Wallington Industries and Ors (1991) 2 All ER 563 at 592-4; Re Canada Trust Co and Cantol and Co Ltd and Ors (1979) 103 DLR(3d) 109; and Lock v Westpac Banking Corporation (1991) 25 NSWLR 593 at 606. Mr Whitington also contended that the defendant as trustee was under a duty to exercise its powers honestly and in good faith, but was under no fiduciary duty to the members of the fund. 33. The defendant further argued, relying on Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and The Registrar General 124 LSJS 225, that the matter was not fit for disposal by summons for immediate relief. 34. I do not pause to set out all of the arguments advanced by Mr Gray QC for the plaintiff, and by Mr Whitington. 35. After carefully considering the whole of the material put forward, and the arguments which they have advanced, I have reached the view that this is not a proper matter to be disposed of on a summons for immediate relief. While it must be acknowledged that the plaintiffs have a strong case with respect to their right to oblige the defendant to adhere to the August 1990 changes, and while it may well be that at the end of the day the internal management rule which, for present purposes finds expression in s.68A of the Companies Code, will put the defendant out of Court in its assertion that the actions of Maslin were unauthorised, and the consequences of those actions void, I think that the defendant has raised sufficient to justify all of the issues raised in the Statement of Claim and the draft defence to go to trial. 36. It seems to me that an orderly disposal of the proceedings foreshadowed between the defendant and Maslin and National Mutual would best be assisted by them coming into the present proceedings as third parties, and by them participating in the trial, with the result that they will then be bound by a single finding as to the various factual issues. 37. It is true, of course, that if the plaintiffs had what seemed to be an unanswerable case, it would not be right to deny the plaintiffs a summary judgment simply because the defendant wanted to join others as third parties. But it seems to me, looking at the case overall, and putting together the views which I have formed as to the issues between the plaintiffs and the defendant, and the defendant's desire to proceed with its claims against the other parties, that it is best that they all be brought to trial together. If, for example, Maslin was to be found liable for damages, this may well have the effect of increasing the fund. It is better that the plaintiffs have the benefit of a resolution of that question during the course of the proceeding which they have instituted. Indeed, I think it is best that all of the issues which have arisen with respect to the administration of the fund, be resolved in the one proceedings. The fund documents are complex in nature, and the application of the equitable principles involved, particularly with reference to the duties owed by the defendant in the position of conflict in which it undoubtedly is placed by reason of its status both as employer and trustee, require careful consideration. That process will be enhanced if all affected parties are heard. Insofar as the conduct of Maslin, who for most of the period in question was the effective agent of the defendant in making the decisions which have precipitated the present position, is a relevant matter to be investigated, it is best that he be a party to the proceedings and have an opportunity to be heard as a party. 38. I am conscious of the fact that the plaintiffs, as employees, may feel somewhat daunted at the prospect of the case proceeding to trial, bearing in mind that the defendant no doubt has access to substantial resources with which to fight the matter. It does seem to me, however, that given the nature of the various claims, and the very detailed and thorough manner in which the affidavits which were filed in support of the application for immediate relief have been prepared, I may well be disposed to make directions that the affidavits be tendered at the trial, and that the plaintiffs produce for cross examination only such of the deponents as the defendant is able to satisfy me should be called for that purpose. 39. In other words, it seems to me that the investment made in the not insubstantial costs associated with the application presently before me may be translated into a mechanism by which, from the plaintiffs point of view, the trial may proceed without incurring a great deal of further expense on their part. 40. Furthermore, I am prepared to proceed to give directions as to the issue of third party proceedings, and the completion of the pleadings and other pre-trial matters generally, within a tight framework in the hope that the matter can be brought to trial promptly. 41. I will also raise with counsel for the defendant, after delivery of these reasons, the question of the level of benefits to be paid to any employee who may retire or otherwise become eligible for a benefit under the fund in the period intervening before trial, and the question whether the defendant should be replaced as trustee at this stage. 42. Subject to dealing with those matters, the application is dismissed.